UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549

                                  FORM 10-K


  X        ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934

               FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 or

           TRANSITION REPORT PURSUANT TO SECTION 13  or 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934

                       Commission file number 0-20882

                       STANDARD MANAGEMENT CORPORATION
           (Exact name of registrant as specified in its charter)

                       Indiana                        35-1773567
          (State or other jurisdiction of          (I.R.S. employer
           incorporation or organization)         identification no.)

 9100 Keystone Crossing, Indianapolis, Indiana 46240 (317) 574-6200
      (Address of principal executive offices)        (Telephone)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the  Act:  Common  Stock, No
Par Value

Indicate  by  check  mark  whether  the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities  Exchange  Act of
1934  during  the  preceding  12  months  (or  for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes   X    No

Indicate by check mark if disclosure of delinquent  filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not  be  contained,  to the
best  of  registrant's knowledge, in definitive proxy or information statements
incorporated  by  reference  in  Part III of this Form 10-K or any amendment to
this Form 10-K. [  ]

The aggregate market value of the  voting  stock  held by non-affiliates of the
Registrant, based upon the closing sale price of the  Common Stock on March 15,
1999 as reported on The Nasdaq Stock Market, was approximately  $42.3  million.
Shares of Common Stock held by each executive officer and director and by  each
person  who  owns 5% or more of the outstanding Common Stock have been excluded
in that such persons  may  be  deemed  to  be affiliates. This determination of
affiliate  status  is  not  necessarily a conclusive  determination  for  other
purposes.

As of March 15, 1999, Registrant  had  outstanding  7,581,265  shares of Common
Stock.

Documents Incorporated by Reference:
Portions of the Registrant's definitive Proxy Statement for the  Annual Meeting
of Stockholders are incorporated by reference into Part III of this Form 10-K.




<PAGE>

                                       PART I


      AS  USED  IN THIS REPORT, UNLESS THE CONTEXT OTHERWISE CLEARLY  REQUIRES,
"SMC", OR THE "COMPANY"  REFERS  TO  STANDARD  MANAGEMENT  CORPORATION  AND ITS
CONSOLIDATED   SUBSIDIARIES   AND  "STANDARD  MANAGEMENT"  REFERS  TO  STANDARD
MANAGEMENT CORPORATION ON AN UNCONSOLIDATED  BASIS.  ALL  FINANCIAL INFORMATION
CONTAINED  IN  THIS  REPORT IS PRESENTED IN ACCORDANCE WITH GENERALLY  ACCEPTED
ACCOUNTING PRINCIPLES ("GAAP") UNLESS OTHERWISE SPECIFIED.

ITEM 1. BUSINESS OF SMC

      SMC is an international  financial services holding company that directly
and through its subsidiaries develops,  markets and administers profitable life
insurance, annuities and unit-linked in force business and products.  A primary
component  of SMC's growth relates to the  acquisition  of  selected  insurance
companies and  in force life insurance and annuity businesses.  Since 1993, the
Company has acquired  5  insurance  companies.   See  "Acquisition Strategy and
Recent   Acquisitions"   for  related  information.   Through   its   insurance
subsidiaries,  the  Company's  operating  strategy  is  to  develop  profitable
products,  enhance  marketing   distribution   channels   and  consolidate  and
streamline management and administrative functions of acquired companies.

OPERATING SEGMENTS

      The  Company  conducts  and  manages its business through  the  following
operating segments reflecting the geographical locations of principal insurance
subsidiaries:

      DOMESTIC  OPERATIONS includes the  following  insurance  subsidiaries  at
December 31, 1998:

<circle>Standard  Life  Insurance  Company  of Indiana ("Standard Life"), SMC's
      principal  insurance subsidiary, was organized  in  1934  as  an  Indiana
      domiciled life  insurer.  It is licensed to write new business or service
      existing business in the District  of  Columbia and all states except New
      York  and  New  Jersey. Standard Life offers  flexible  premium  deferred
      annuities ("FPDAs"),  equity-indexed  annuities, whole and universal life
      insurance and critical illness products.   Standard  Life  also generates
      cash  flow  and income from closed blocks of in force life insurance  and
      annuities. At  December  31,  1998, Standard Life's statutory assets were
      $572.6 million and the aggregate  of  its  statutory capital and surplus,
      asset valuation reserve ("AVR") and interest  maintenance reserve ("IMR")
      (its  "adjusted  statutory  capital")  was $61.9 million.  The  ratio  of
      adjusted statutory capital to its total  statutory  assets  was  10.8% at
      December  31,  1998.  Standard  Life  has  a  rating of "B+" ("Very Good,
      Secure") by the rating agency, A.M. Best Company, Inc. ("A.M. Best").

<circle>Dixie National Life Insurance Company ("Dixie  Life"),   a  99.4% owned
      subsidiary  of  Standard  Life,  was  organized  in 1965 as a Mississippi
      domiciled life insurer.  Dixie Life is licensed in  22 states and markets
      a  variety  of life insurance products throughout the mid-south  offering
      primarily "burial  expense" policies.  At December 31, 1998, Dixie Life's
      statutory assets were  $35.6  million, the adjusted statutory capital was
      $4.0  million and the ratio of its  adjusted  statutory  capital  to  its
      statutory  assets was 11.2%. Dixie Life has a rating of "B " ("Adequate")
      by A.M. Best.

<circle>Standard Marketing  Corporation  ("Standard  Marketing") is a wholesale
      distributor of life insurance and annuity products.  Through  its network
      of  managing  general  agents  and independent agents, Standard Marketing
      distributes life insurance and annuity  products  for  Standard  Life and
      Dixie  Life  and  for a select group of unaffiliated insurance companies.
      Standard Marketing  earns  override  commission  income  from the sale of
      these products.

<circle>Savers   Marketing  Corporation  ("Savers  Marketing")  is  the   prior
      marketing distributor  of  Savers Life Insurance Company ("Savers Life").
      Refer  to  "Acquisition  Strategy   and   Recent  Acquisitions".   Savers
      Marketing markets Standard Life's products through financial institutions
      and independent agents.  Savers Marketing also  receives  administrative,
      marketing  and  commission  fees  for  services  provided to unaffiliated
      companies.

      INTERNATIONAL OPERATIONS includes the following holding  company  and its
two wholly-owned insurance subsidiaries at December 31, 1998:

<circle>Standard  Management  International S.A., a wholly-owned subsidiary  of
      SMC,  is  a holding company  organized  under  Luxembourg  law  with  its
      registered   office  in  Luxembourg.   At  December  31,  1998,  Standard
      Management International,  S.A.  and  its subsidiaries ("SMI") had $205.5
      million  in  assets with policies in force  in  over  80  countries.  The
      majority of its  business  is unit-linked assurance products with a range
      of policyholder directed investment  choices  coupled  with a small death
      benefit, sold through its subsidiaries.

<circle>Premier Life (Luxembourg) S.A. ("Premier Life (Luxembourg)")  primarily
      offers  standard unit-linked products throughout the European Union.   At
      December 31, 1998 it had statutory capital and surplus of $6.8 million.

<circle>Premier Life (Bermuda) Ltd. ("Premier Life (Bermuda)") primarily offers
      tax deferred  unit-linked products in niche markets throughout the world.
      At December 31,  1998  it  had  statutory  capital  and  surplus  of $2.1
      million.

ACQUISITION STRATEGY AND RECENT ACQUISITIONS

      A   principal  component  of  SMC's  strategy  is  to  grow  through  the
acquisition  of  life insurance companies and blocks of in force life insurance
and annuities. SMC regularly investigates acquisition opportunities in the life
insurance industry  that  complement  or are otherwise strategically consistent
with its existing business. Any decision  to  acquire a block of business or an
insurance company will depend on a favorable evaluation of various factors. SMC
believes  that  availability  of blocks of business  in  the  marketplace  will
continue  in response to ongoing  industry  consolidation,  risk-based  capital
requirements  and other regulatory and rating agency concerns. In addition, SMC
plans to market  annuity and life insurance products directly as it has done in
the past. SMC currently  has  no  plans  or commitments to acquire any specific
insurance business or other material assets.

      SMC has the information systems and administrative capabilities necessary
to  add  additional  blocks  of business without  a  proportional  increase  in
operating expenses. In addition,  SMC  has  developed management techniques for
reducing or eliminating the expenses of the companies  it  acquires through the
consolidation  of their operations with those of SMC.  Such techniques  include
reduction  or  elimination   of  overhead,  including  the  acquired  company's
management, staff and home office, elimination of marketing expenses and, where
appropriate, the substitution  of Standard Marketing's network for the acquired
company's current distribution system,  and  the  conversion  of  the  acquired
company's data processing operations to SMC's system.

      SMC  typically  acquires  companies  or  blocks  of  business through the
purchase  or  exchange  of  shares.   This  method is also used for  assumption
reinsurance  transactions.   SMC's  acquisitions  may  be  subject  to  certain
regulatory approvals, policyholder consents and stockholder approval.

      The following is a list of SMC's  most  recent acquisitions and the terms
under which they were purchased:

<circle>On November 8, 1996, Standard Life acquired  through merger Shelby Life
      Insurance Company ("Shelby Life") from Delta Life and Annuity Corporation
      ("DLAC"),  a  life insurance company located in Memphis,  Tennessee  (the
      "Shelby Merger").   The  purchase  price was approximately $14.7 million,
      including  $13.0 million in cash, 250,000  shares  of  restricted  Common
      Stock (valued  at  $1.3  million)  and  acquisition costs of $.4 million.
      Financing for the Shelby Merger was provided  by  $10.0  million  from an
      Amended   Revolving   Line  of  Credit  Agreement  (the  "Amended  Credit
      Agreement") and $4.0 million in subordinated convertible debt.

<circle>On March 12, 1998, SMC  acquired Savers Life Insurance Company ("Savers
      Life").   Each  of the 1,779,908  shares  of  Savers  Life  Common  Stock
      outstanding was converted into 1.2 shares of SMC Common Stock plus $1.50.
      Each holder of Savers  Life Common Stock could elect to receive the $1.50
      per share portion of the  merger  consideration in the form of additional
      shares of SMC Common Stock.  SMC issued  approximately 2.2 million shares
      with a value of approximately $14.9 million,  paid  $2.2  million in cash
      and $1.5 million in acquisition costs for an aggregate purchase  price of
      $18.6  million.   SMC  increased  the  Amended  Credit Agreement to $20.0
      million as a result of the Savers Life acquisition.   The  acquisition of
      Savers Life included its wholly-owned subsidiary Savers Marketing.

<circle>On  October  30, 1998, SMC acquired Midwestern National Life  Insurance
      Company of Ohio,  ("Midwestern  Life").  SMC issued 696,453 shares of its
      common stock valued at $4.6 million,  increased  its  bank  debt  by $6.0
      million  on restructured terms by increasing the Amended Credit Agreement
      to $26.0 million,  and  paid  $2.9  million  in  cash  and $.6 million of
      acquisition  costs  for an aggregate purchase price of $14.1  million  to
      acquire Midwestern Life.

      The acquisitions of Shelby  Life,  Savers  Life  and Midwestern Life were
accounted  for using the purchase method of accounting and  accordingly,  SMC's
consolidated  financial  statements  include  the  results of operations of the
acquired companies from the effective dates of their  respective  acquisitions.
Shelby  Life  was merged into Standard Life, effective November 8, 1996,  while
Savers Life and  Midwestern  Life  were  merged  into  Standard  Life effective
December 31, 1998.  As a result of these mergers, Standard Life remained as the
surviving entity.  Under purchase accounting, SMC allocated the total  purchase
price of the assets and liabilities acquired, based on a determination of their
fair  values  and  recorded  the  excess  of  acquisition  cost over net assets
acquired as goodwill, which will be amortized on a straight-line  basis over 20
- 30 years.

MARKETING

      DOMESTIC MARKETING

      GENERAL:  Standard  Marketing  was  organized as a wholesale distribution
system to provide a lower cost alternative  to  the  traditional captive agency
force. Standard Marketing and Savers Marketing have established  a  network  of
approximately  20,000  independent  general agents.   These agents distribute a
full line of life insurance and annuity  products  issued  by Standard Life and
Dixie Life and a select group of unaffiliated insurance carriers  that Standard
Marketing  represents.  As  part  of  its normal recruiting, Standard Marketing
selectively recruits new agents from those  formerly  associated with companies
acquired by SMC.

<PAGE>
      SMC  believes  that  both  agents  and  policy owners value  the  service
provided by SMC. Standard Marketing and Savers  Marketing  i)  assist agents in
submitting  and  processing  policy applications, ii) help ensure that  issuing
insurers pay commissions on a  timely  basis  (commissions  are  paid within 24
hours  subsequent  to  receipt  of  policyholder's  deposit), iii) assist  with
licensing applications, iv) provide marketing support  for  its  agents, and v)
can introduce agents to lead services.

      STANDARD  MARKETING  agents offer a full portfolio of life insurance  and
annuity products that Standard  Marketing  has  selected  on the basis of their
competitive  position  and likely consumer acceptance. Such portfolio  includes
FPDAs,  equity- indexed annuities,  whole  and  universal  life  insurance  and
critical  illness  products  issued  by Standard Life and Dixie Life, for which
Standard Marketing is the exclusive distributor,  and  life  insurance products
issued by selected unaffiliated insurers.  Standard Marketing receives override
commissions  on  sales by its agents, which are in addition to the  commissions
paid to Standard Marketing's  independent agents.  The availability of override
commissions provides an economic  incentive  to  Standard  Marketing to recruit
agents  who  produce business.  Standard Marketing's relationships  with  these
companies are  non-exclusive  and  are  terminable by either party upon 30 days
notice.  Standard Marketing regularly evaluates  the  products its agents offer
to determine whether products or insurers should be added  to, or deleted from,
the Standard Marketing portfolio.  SMC does not insure any of  the policies and
contracts Standard Marketing's agents sell for unaffiliated insurers.

      Each  general  agent operates his own agency and is responsible  for  all
expenses of the agency.   The  general  agents  are compensated directly by the
issuing  insurance companies, which perform all policy  issuance,  underwriting
and accounting  functions.  SMC is not dependent on any one agent or agency for
any substantial amount of its  business.   No  single  agent accounted for more
than 6% of Standard Life's annual sales in 1998, and the  top twenty individual
agents accounted for approximately 42% of Standard Life's volume  in  1998.  At
December 31, 1998, approximately 66% of Standard Marketing's independent agents
were  located  in  Florida,  Indiana,  California, Ohio, Texas, North Carolina,
Illinois,  Missouri  and  Georgia,  with the  balance  distributed  across  the
country.  SMC is attempting to increase  the number and geographic diversity of
its  agents.  In 1997, SMC began writing significant  amounts  of  business  in
California and the mid-south due to Standard Marketing's expansion efforts.

      SMC does  not  have  exclusive  agency  agreements  with  its  agents and
management believes most of these agents sell products similar to those sold by
SMC  for  other  insurance companies.  This could result in a sales decline  if
SMC's products were to become relatively less competitive. Standard Life's 1998
FPDA and equity indexed  annuity sales increased partially due to an aggressive
marketing  campaign  targeted   to  high  volume  sales  agents  and  marketing
companies.  Also contributing to  the  increase  in  premiums was the continued
development  of Standard Life's distribution system through  marketing  support
from Standard  Marketing along with an aggressive program aimed at retention of
key producers and expanded geographical concentration.

    SAVERS MARKETING distributes through financial institutions and independent
general agents.  Savers  Marketing  has  approximately 4,000 active brokers and
is not dependent on any one broker or agency for any substantial  amount of its
business.  Each broker operates independently and is responsible for all of his
or  her expenses.   Savers Marketing  employs three Regional Managers, who  are
responsible for personally initiating  and  maintaining  direct  communications
with  brokers  and are responsible for the recruitment and training of all  new
brokers.

      Savers   Marketing   also  entered  into  a  three-year   marketing   and
administrative  contract  with  QualChoice  of  North  Carolina  ("QualChoice")
effective October 1, 1998 whereby  Savers  Marketing is the distribution system
for the small group product offered by QualChoice.   QualChoice  is an HMO in a
twenty-county  area  in  the  northwestern part of North Carolina offering  HMO
insurance coverage.  Savers Marketing  is  compensated  for  this effort with a
marketing fee, administrative fee and commission reimbursement  for  the use of
its  brokers.   Prior  to  the agreement with Savers Marketing, QualChoice  was
under an agreement with Savers Life that commenced in 1996.

      INTERNATIONAL MARKETING

      PREMIER LIFE (LUXEMBOURG)  AND PREMIER LIFE (BERMUDA), produced aggregate
new premium deposits of approximately  $43 million, $22 million and $17 million
during 1998, 1997 and 1996, respectively. The increases in 1997 and 1998 relate
to renewed marketing efforts in certain  European  countries,  particularly  in
Sweden,  Belgium  and Italy.  The countries within the European Union have been
the main contributor  to  these sales. Although SMC expects this to be the case
in the future, it plans to  increase  marketing  efforts  in other parts of the
world as well.

      Although  SMI  anticipates  as  part  of  its  long  term  plan  to  grow
significantly through internal sales, acquisitions of other European  insurance
companies  may  be  considered.  It  has  designed  and launched new single and
regular  premium products in recent years. It is also  in  discussions  with  a
number of  companies  to  form alliances to produce tailored products for their
markets.  It is currently the  intention  that  Premier  Life (Luxembourg) will
write business within the European Union and Premier Life  (Bermuda) will write
international business elsewhere in the world. The market for SMI's products is
considered  to  be medium to high net worth individuals who typically  have  in
excess of $75,000  to  invest  in  a  single  premium policy and medium to high
earners who have in excess of $3,000 per annum  to  invest in a regular premium
savings  product.  The  above  individuals  would come from  a  combination  of
expatriates,  residents of European Union countries  and  from  other  targeted
areas. The expatriate  and  European insurance markets are well established and
highly competitive with a large  number  of  domestic  and international groups
operating in, or going into, the same markets as SMI.

      SMI's   products  are  distributed  via  independent  agents   who   have
established connections  with  these  targeted  individuals. SMI is striving to
develop into an entrepreneurial-intermediary oriented organization committed to
building  long  term  relationships  with  high quality  distributors,  thereby
creating  a  niche  position.   SMI  places the same  emphasis  as  SMC's  U.S.
insurance  companies  on  a  high  level  of   service  to  intermediaries  and
policyholders while striving to achieve low overhead costs.

PRODUCTS

      SMC  primarily  markets  FPDAs,  equity indexed  annuities,  whole  life,
universal  and  interest-sensitive  life  insurance  policies  and  unit-linked
policies.  The following table sets forth the  amounts  and  percentages of net
premiums received by SMC from currently marketed products for  the  years ended
December  31,  1998, 1997 and 1996, respectively (in thousands).  Because  GAAP
generally excludes annuity and unit-linked products deposits, and premiums from
universal and interest-sensitive  life  insurance from premium income, and thus
does  not  fully  reflect  SMC's  cash  flow from  new  business,  the  premium
information  contained  in  the following table  is  reported  using  statutory
accounting principles which includes the aforementioned items.

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
<S>                                 <C>                  <C>           <C>                 <C>          <C>               <C>
                                                 1998                              1997                              1996  
                                     Amount                 %          Amount              %            Amount             %
Currently marketed products:
    FPDAs                            $60,086              45.8         $41,066              55.5        $37,322            58.7
   Unit-linked products               42,536              32.5          21,954              29.7         16,902            26.6
   Equity-indexed annuities           16,858              12.9              --                --             --              --
   Universal and                       5,816               4.4           5,836               7.9          5,384             8.5
    interest-sensitive life
   Whole life                          3,282               2.5           2,349               3.2          2,546             4.0
   Single premium immediate annuities  2,545               1.9           2,704               3.7          1,423             2.2
                                    $131,123             100.0         $73,909             100.0        $63,577           100.0
</TABLE>


      Annuity sales increased  in 1998 primarily due to the introduction of new
products and an increase in the agency base achieved through the recruitment of
high volume agents.  Also attributable  to  the  annuity  sales  increase  were
larger  managing  general  agencies  and  continued  expansion  of geographical
concentration.

      The increase in deposits from unit linked products in 1998  is  primarily
due  to  a  continuation  of  marketing  efforts in certain European countries,
particularly in Sweden, Belgium and Italy.

CURRENTLY MARKETED PRODUCTS

      The individual annuity business is a  growing  segment of the savings and
retirement industry, which increased in sales from $1  billion  in 1970 to more
than $54 billion in 1990. The individual annuity market, which is  one of SMC's
primary  targets, comprises 61% of those sales. As the 76 million baby  boomers
born from  1946  through  1964  grow  older,  demand  for insurance products is
expected to grow. SMC believes that those seeking adequate  retirement  incomes
will  become  less dependent on Social Security and their employers' retirement
programs and more  dependent  upon  their  own  financial  resources. Annuities
currently enjoy an advantage over certain other saving mechanisms  because  the
annuity  buyer  receives  a  tax-deferred accrual of interest on his investment
during the accumulation period.




<PAGE>
      SMI's products are sold  primarily  in Western Europe.  SMC's gross sales
percentages by U.S. geographical region are summarized as follows:

      STATE                          1998        1997        1996


      Indiana                         17%         21%         18%
      Ohio                            15          10          16
      North Carolina                  10           4           4
      Arizona                          9          --          --
      Florida                          8          10          14
      Hawaii                           7          --          --
      California                       5          11          11
      Nevada                           3           2           2
      Texas                            3           4           4
      All other states {(1)}          23          38          31
      Total                          100%        100%        100%

(1)   No other state had gross sales greater than 6%.

STANDARD LIFE PRODUCTS

      FLEXIBLE  PREMIUM DEFERRED ANNUITIES ("FPDA"s)  provide  for  an  initial
deposit by an annuitant  and  optional additional deposits, the time and amount
of which are at the discretion  of  the  annuitant.  Standard  Life credits the
account  of  the  annuitant  with  earnings at interest rates that are  revised
periodically by Standard Life until  the  maturity date. This accumulated value
is tax deferred. Revisions to interest rates  on  FPDAs  are  restricted  by an
initial  crediting  rate guaranteed for a specific period of time and a minimum
crediting rate guaranteed  for the term of the FPDA. At maturity, the annuitant
can elect a lump sum cash payment  of  the  accumulated  value  or  one  of the
various  payout  options  available.  Standard  Life's  FPDAs  also provide for
penalty-free  partial  withdrawals  of  up  to 10% annually of the accumulation
value  after  the  annuitant has held the FPDA for  more  than  12  months.  In
addition, the annuitant  may surrender the FPDA at any time before the maturity
date and receive the accumulated  value,  less  any  surrender  charge  then in
effect for that contract. To protect holders of FPDAs from a sharp reduction in
the  credited  interest rate after a FPDA is issued, Standard Life permits  the
FPDA holder of certain  annuities  to  surrender the annuity during a specified
period without incurring a surrender charge  if  the  renewal crediting rate is
below  a  stated level. This stated level of interest is  referred  to  as  the
"bail-out rate"  and  is typically below the original crediting rate, but above
the minimum guaranteed crediting rate.

      As of January 1,  1999,  the crediting rates available on Standard Life's
currently marketed FPDAs ranged  from  4.8% to 11.0%, with new issues having an
interest rate with a one year guarantee  period.  After the initial period, the
crediting rate may be changed periodically, subject to minimum guaranteed rates
from 3.0% to 4.0%. As of January 1, 1999, interest  crediting  rates  after the
initial  guarantee  period  ranged  from 3.5% to 5.9%. The surrender charge  is
initially  7%  or  15%  of the contract value  depending  on  the  product  and
decreases over the applicable  surrender  charge  period  of  five  to thirteen
years.  As of January 1, 1999, the bail out rate for Standard Life's FPDAs  was
4.5%; most currently marketed products carry a bail out rate for only the first
two years  after  issuance.  As  of  December 31, 1998, Standard Life had 8,962
currently marketed FPDA contracts in force.

      EQUITY-INDEXED FPDAS.  In response  to  consumers' desire for alternative
investment products with returns linked to those  of  common  stocks,  Standard
Life  introduced  an  equity-indexed  FPDA  product  in May 1998.  This product
accounted  for  $16.9  million of the total premiums collected  in  1998.   The
annuity's contract value  is  equal  to  the premium paid increased for returns
based upon a percentage (the "participation rate") of the change in the S&P 500
Index during each year of its term, subject to a minimum guaranteed value.  The
Company has the discretionary ability to annually change the participation rate
(which  currently  ranges  from 65% to 70% plus  a  first-year  "bonus").   The
minimum guaranteed values are  equal  to  85%  of first year and 90% of renewal
premiums collected for FPDAs, plus interest credited  at  an annual rate of 3%.
The annuity provides for penalty-free withdrawals of up to  10%  in  each  year
after the first year of the annuity's term.  Other withdrawals from the product
are  subject  to  a  surrender  charge of 10% in the first year, declining each
year, to zero over a 9 year period.   The  Company  purchases Standard & Poor's
500  Index  Call  Options  (the  "S&P  500  Call Options") to  hedge  potential
increases to policyholder benefits resulting  from  increases  in  the  S&P 500
Index  to  which  the  product's  return  is  linked.  As of December 31, 1998,
Standard Life had 617 equity-indexed contracts.

      UNIVERSAL LIFE.  Single premium universal  life ("SPUL") policies provide
for an initial deposit (flexible premium universal  life  ("FPUL") for periodic
deposits), credit interest to account values and charge the  account values for
mortality and administrative costs. As of January 1, 1999, the current interest
rate on new sales of SPULs and FPULs was 5.5% with a guaranteed  interest  rate
of  3.4%.  As  of December 31, 1998, Standard Life had 78 and 496 SPUL and FPUL
policies in force, respectively.

<PAGE>
      SINGLE PREMIUM  IMMEDIATE  ANNUITIES.   Standard  Life  offers  a  single
premium  immediate annuity ("SPIA") whereby an annuitant purchases an immediate
annuity with  a one-time premium deposit at the time of issuance. Standard Life
begins a payout  stream  shortly  after  the  time  of  issuance  consisting of
principal  value  plus  accumulated  interest  credited  to such annuity.  This
product  credits  interest  based  on  an  investment  portfolio   earned  rate
assumption.  As  of December 31, 1998, Standard Life had 764 SPIA contracts  in
force.

      WHOLE   LIFE   INSURANCE.     Standard   Life   offers   two   types   of
non-participating whole life policies: one in face amounts up to $10,000 (which
is only issued upon conversion of other policies) and the other in face amounts
up to $50,000. Whole life insurance products  involve  fixed  premium  payments
made  over  time, with the stated death benefit paid in full upon the death  of
the insured.  The  whole  life  policy combines the death benefit with a forced
savings plan. Premiums remain level  over  the  life  of  the  policy, with the
policyholder prefunding during the early years of coverage when  risk  of death
is  low. Over time, whole life policies begin to accrue a cash value which  can
be made available to the policyholder net of taxes and withdrawal penalties. As
of December  31,  1998,  Standard  Life  had  630 currently marketed whole life
policies in force.

DIXIE LIFE PRODUCTS

      Life  insurance policies sold by Dixie Life  in  the  final  expense,  or
burial market  include  fixed  premium interest sensitive policies that provide
for increasing death benefits, as  well  as  traditional  whole  life policies.
These  policies  are designed to cover expenses such as funeral, last  illness,
monument and cemetery  lot. The policies provide for a death benefit, generally
not in excess of $10,000,  and  a level premium payment. The products include a
cash value which may be borrowed  by  the  policyholder.  Dixie Life's policies
sold  in  other markets include interest sensitive and traditional  whole  life
policies and forms of term policies. The interest sensitive whole life policies
have a guaranteed  interest  rate of 5.5% on products marketed as of January 1,
1999.  The interest sensitive and whole life policies include cash values which
may be borrowed by the policyholder.  Dixie  Life  issues  policies  on  both a
participating and non-participating basis. As of December 31, 1998, Dixie  Life
had   597   and  22,195  individual  annuities  and  life  policies  in  force,
respectively.   Effective  January  1,  1999,  SMC  has decided not to sell new
business through Dixie Life.

SMI PRODUCTS

      UNIT-LINKED  POLICIES.  SMI currently writes unit-linked  life  products,
which are similar to  U.S.  produced  variable  life products. Separate account
assets and liabilities are maintained primarily for  the  exclusive benefits of
universal  life  contracts  and  investment  contracts  of which  the  majority
represents unit-linked business, where benefits on surrender  and  maturity are
not  guaranteed.  They  generally  represent  funds  held  in  accounts to meet
specific  investment objectives of policyholders who bear the investment  risk.
Investment  income and investment gains and losses within the separate accounts
accrue  directly   to   the   policyholders.  The  fees  received  by  SMI  for
administrative and contract holder  maintenance  services  performed  for these
separate accounts are included in SMC's statement of operations.

      In  the  past,  SMI  also  wrote  investment contracts and universal life
policies  and to a lesser extent, traditional  life  policies.  The  investment
contracts  are   mainly  short-term  single  premium  endowments  or  temporary
annuities under which fixed benefits are paid to the policyholder. The terms of
these contracts are  such  that SMC has relatively small morbidity or mortality
risk.  The universal life contracts  are  mainly  regular  premium  and  single
premium  endowment.  The  benefits  payable  to  the policyholders are directly
linked to the investment performance of the underlying assets.

CLOSED BLOCKS

      SMC also generates cash flow and income from  its  closed  blocks  of  in
force  life  insurance and annuities. Closed blocks are blocks of in force life
insurance and  annuities  that  are  not  currently  being marketed by SMC. The
closed  block  designation does not have legal or regulatory  significance  and
there are no restrictions  on  the  assets  or future profits of closed blocks.
The premiums received on the closed blocks were primarily from the ordinary and
universal life business. This decline in premium income is expected as a result
of policy lapses, surrenders and expiries from closed blocks of business.

      ANNUITIES.  SMC's closed blocks of deferred  annuities  consist primarily
of  FPDAs  and  a  small amount of single premium deferred annuities  ("SPDAs")
which, unlike FPDAs,  do not provide for additional deposits.  As of January 1,
1999, these deferred annuities  had  crediting  rates ranging from 3.5% to 5.5%
and guaranteed minimum crediting rates ranging from 3.0% to 5.5%. The crediting
rate may be changed periodically. The contract owner  is  permitted to withdraw
all or part of the accumulation value. SMC's closed blocks of annuities include
payout annuities. Payout annuities consist of those annuities  the  benefits of
which are being paid out over a specified time period. Payout annuities  cannot
be  terminated  by  surrender  or  withdrawal.  SMC's crediting rates on payout
annuities range from 3.0% to 6.5% and cannot be changed.  At December 31, 1998,
SMC had 10,993 annuity contracts in force for closed blocks.

      ORDINARY  LIFE.   The ordinary life policies  included  in  SMC's  closed
blocks are composed primarily of fixed premium, cash value whole life products.
In addition, they include annually renewable term policies as well as five, ten
and fifteen year level premium  term  policies.   At December 31, 1998, SMC had
41,868 ordinary life policies in force for closed blocks.

      UNIVERSAL LIFE.  Certain closed blocks include  universal  life business.
For  this  business,  SMC  credits deposits and interest to account values  and
charges the account values for mortality and administrative costs.  At December
31, 1998, SMC had 6,724 universal  life  policies in force for the closed block
of business.

PRODUCT PROFITABILITY

      The profitability of the life insurance  and annuity products depend to a
significant  degree  on the maintenance of profit  margins  between  investment
results from invested  assets  and  interest  credited on insurance and annuity
products.  During  1998,  such  margins  increased  as  a  result  of decreased
crediting rates  on insurance  and annuity products.  Refer to "Investments" in
Item 1 of this report.

      The long-term profitability of insurance products depends on the accuracy
of  the  actuarial assumptions that underlie  the  pricing  of  such  products.
Actuarial   calculations   for   such  insurance  products,  and  the  ultimate
profitability   of  such  products,  are   based   on   four   major   factors:
(i) persistency,  (ii)  mortality  (iii) return on cash invested by the insurer
during the life of the policy and (iv)  expenses of acquiring and administering
the policies.

      The average expected remaining life  of  Standard  Life's  ordinary  life
business  in  force  at  December  31, 1998 was 9.4 years. This calculation was
determined based upon SMC's actuarial  models  and  assumptions  as to expected
persistency  and  mortality.  Persistency  is  the  extent  to  which insurance
policies sold are maintained by the insured. The persistency of life  insurance
and  annuity products is a critical element of their profitability. However,  a
surrender charge often applies in the early contract years and declines to zero
over time.

      Policyholders  sometimes do not pay premiums, thus causing their policies
to lapse. For the years  1998,  1997  and  1996 Standard Life experienced total
policy lapses of 6.1%, 6.5% and 6.3% of total  policies in force at December 31
of each year, respectively. The American Council  of  Life  Insurance 1998 Fact
Book reported industry life insurance voluntary termination rates  in  1997  of
14.9% for policies in force less than two years, 4.4% for policies in force for
two years or more and 6.1% for all policies in force.

OPERATIONS

      SMC  emphasizes  a  high level of service to agents and policyholders and
strives  to  achieve  low  overhead   costs.   SMC's  principal  administrative
departments are its financial, policyholder services and management information
services  ("MIS")  departments. The financial department  provides  accounting,
budgeting, tax, investment,  financial  reporting  and  actuarial  services and
establishes cost control systems for SMC. The policyholder services  department
reviews  policy  applications,  issues  and administers policies and authorizes
disbursements related to claims and surrenders. The MIS department oversees and
administers SMC's information processing systems.

      SMC's  administrative departments in  the  United  States  use  a  common
integrated system  that  permits efficiency and cost control.  SMC's MIS system
serviced approximately 192,000  active  and  inactive  policies at December 31,
1998 and is continually being improved to provide for growth  from acquisitions
and sales.

      SMI's administrative and MIS departments in Luxembourg are  an autonomous
unit from the systems in the United States. SMC is in the process of  improving
the MIS systems of SMI and integrating them with the U.S. systems.

INVESTMENTS

      Investment  activities  are  an  integral  part  of SMC's business as the
investment income of SMC's insurance subsidiaries is an  important  part of its
total  revenues.  Profitability  is  significantly  affected by spreads between
rates credited on insurance liabilities and interest earned on invested assets.
Substantially all credited rates on FPDAs may be changed at least annually. For
the year ended December 31, 1998, the weighted average  interest  rate credited
on SMC's interest-sensitive liability portfolio, excluding liabilities  related
to  separate  accounts,  was  approximately  5.25%  per annum, and the weighted
average net yield of SMC's investment portfolio for the year ended December 31,
1998 was 7.48% for an average interest spread of 223  basis  points at December
31,  1998, compared to 206 basis points at December 31, 1997. The  increase  in
the average  interest  spread  includes  i)  lower  crediting  rates on new and
existing  FPDA business in order to meet targeted pricing spreads,  offset  by,
ii) deposits  from  FPDA  sales being invested at interest rates lower than the
current portfolio rate due  to a general decline in interest rates during 1998.
Increases or decreases in interest rates could increase or decrease the average
interest rate spread between  investment  yields and interest rates credited on
insurance liabilities, which in turn could  have a beneficial or adverse effect
on the future profitability of SMC. Sales of  fixed  maturity  securities  that
result  in  investment  gains may also tend to decrease future average interest
rate spreads. State insurance  laws  and  regulations  prescribe  the  types of
permitted  investments  and  limit  their  concentration  in certain classes of
investments.

<PAGE>
      SMC  balances  the  duration  of  its invested assets with  the  expected
duration of benefit payments arising from insurance liabilities. The "duration"
of a security is the time-weighted present  value  of the security's cash flows
and  is used to measure a security's price sensitivity  to  changes  in  market
interest  rates.   The  adjusted  modified  duration  of  fixed  maturities and
short-term  investments  for its U.S. insurance subsidiaries was 5.6  years  at
December 31, 1998 and December 31, 1997.

      SMC's investment strategy  is  guided by strategic objectives established
by the Investment Committee of the Board  of  Directors. SMC's major investment
objectives are to: (i) ensure adequate safety of  investments  and  protect and
enhance capital; (ii) maximize after-tax return on investments; (iii) match the
anticipated  duration  of  investments with the anticipated duration of  policy
liabilities; and (iv) provide  sufficient  liquidity  to meet cash requirements
with minimum sacrifice of investment yield. Consistent  with  its strategy, SMC
invests  primarily  in  securities  of  the  U.S. government and its  agencies,
investment  grade utilities and corporate debt  securities  and  collateralized
mortgage obligations ("CMOs").  When opportunities arise below investment grade
securities may  be  purchased,  however,  protection  against default risk is a
primary consideration. SMC has determined it will not invest  more  than  7% of
its bond portfolio in below investment grade securities.

      The  following  table  sets  forth  the  quality  of SMC's fixed maturity
securities as of December 31, 1998, classified in accordance  with  the ratings
assigned by the National Association of Insurance Commissioners ("NAIC"):

                                                 Percent of Fixed
               NAIC RATING (1)                  MATURITY SECURITIES

               1                                        51
               2                                        44
                  Investment Grade                      95
               3-4                                       5
               5-6...................................    --
                  Below Investment Grade                 5
                       Total fixed maturity securities 100%

(1)   The  NAIC  assigns  securities  quality  ratings  and uniform book values
      called  "NAIC  Designations," which are used by insurers  when  preparing
      their annual statements.  The NAIC assigns ratings to publicly traded and
      privately-placed securities.  The ratings assigned by the NAIC range from
      Class  1 to Class 6, with a rating  in  Class  1  being  of  the  highest
      quality.

      Conseco  Capital  Management  Inc.  ("CCM"), a wholly owned subsidiary of
Conseco, Inc., manages SMC's invested assets (other than mortgage loans, policy
loans, real estate and other invested assets),  subject  to  the  direction  of
SMC's  Investment  Committee.  In  1998,  a quarterly fee equal to .035% of the
total market value of the assets under management as of the end of each quarter
was paid to CCM for its investment advisory services.

      Approximately 12% of SMC's fixed maturity securities at December 31, 1998
is   comprised   of  mortgage-backed  securities   which   include   CMOs   and
mortgage-backed pass-through  securities. Approximately 8% of the book value of
mortgage-backed securities in SMC's  portfolio  is backed by the full faith and
credit  of  the U.S. government as to the full amount  of  both  principal  and
interest and  85%  are backed by an agency of the U.S. government (although not
by the full faith and credit of the U.S. government).  SMC closely monitors the
market value of all investments within its mortgage-backed portfolio.

      The  following  table  summarizes  SMC's  mortgage-backed  securities  at
December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
                                                                                                        Estimated          Avg.
                                                         % of                            % of           Avg. Life          Term
                                      Amortized          Fixed           Fair            Fixed             of            to Final
                                        Cost          Maturities         Value        Maturities       Investment        Maturity
<S>                                 <C>               <C>             <C>             <C>             <C>               <C>
                                                                                                       (In Years)       (In Years)
Agency CMOs:
Planned and target amortization     $39,465           7.2%            $39,629         7.2%            5.7               19.9
   classes
Sequential and support classes      21                 --             20               --             0.1               22.0
               Total                39,486            7.2             39,649          7.2             5.8               19.9
Non-agency CMOs:
             Sequential classes     4,891              .9             4,930            .9             4.4               10.9
Total CMOs                          44,377            8.1             44,579          8.1             5.7               18.9
Agency mortgage-backed pass-through
             securities             22,344            4.1             22,546          4.1             2.4               15.2
               Total mortgage-      $66,721           12.2%           $67,125         12.2%           4.6               17.7
               backed securities
</TABLE>

      The market  values  for  SMC's mortgage-backed securities were determined
from  broker-dealer  markets,  internally   developed  methods  and  nationally
recognized statistical rating organizations.

      Certain mortgage-backed securities are  subject to significant prepayment
risk, since, in periods of declining interest rates,  mortgages  may  be repaid
more  rapidly than scheduled as individuals refinance higher rate mortgages  to
take  advantage   of   the  lower  current  rates.  As  a  result,  holders  of
mortgage-backed securities  may  receive  large prepayments on their investment
which cannot be reinvested at an interest rate  comparable  to  the rate on the
prepaying  mortgages.  SMC  has  addressed  this  risk  of  prepayment risk  by
investing 59% of its mortgage-backed investment portfolio in planned and target
amortization  classes.  These investments are designed to amortize  in  a  more
predictable manner by shifting the primary risk of prepayment of the underlying
collateral to investors in  other tranches ("support classes"). Mortgage-backed
pass-through securities, "sequential"  and  support class CMOs, which comprised
the  remaining  41% of the book value of SMC's  mortgage-backed  securities  at
December 31, 1998, are more sensitive to this prepayment risk.

SEPARATE ACCOUNTS

      Separate account  assets  and  liabilities  are  maintained primarily for
universal life contracts of which the majority represents  unit-linked business
where  benefits  on surrender and maturity are not guaranteed.  They  generally
represent funds held  in  accounts  to  meet  specific investment objectives of
policyholders who bear the investment risk. Investment  income  and  investment
gains and losses accrue directly to such policyholders.

UNDERWRITING

      Premiums  charged  on insurance products are based in part on assumptions
about the incidence and timing of insurance claims. SMC has adopted and follows
underwriting procedures for  both  its  whole life and universal life insurance
policies.  To  implement  these  procedures,   SMC   employs   a   professional
underwriting  staff. All underwriting decisions are made in SMC's home  office.
To the extent that  an applicant does not meet SMC's underwriting standards for
issuance of a policy  at  the  standard  risk  classifications, SMC may rate or
decline the application. Underwriting with respect  to  FPDAs  is  minimal.  No
underwriting  procedures  are  applied  to  Standard  Life's $10,000 conversion
policy or SMI's unit-linked business.

      Traditional underwriting procedures are not applied  to policies acquired
in  blocks.  In  these cases, SMC reviews the mortality experience  for  recent
years  and  compares  actual  experience  to  that  assumed  in  the  actuarial
projections for the acquired policies.

RESERVES

      In  accordance   with   applicable   insurance   laws,   SMC's  insurance
subsidiaries  have  established  and  carry  as liabilities in their  statutory
financial  statements,  actuarially  determined  reserves   to   satisfy  their
respective  annuity  contract and life insurance policy obligations.  Reserves,
together with premiums  to  be  received  on  outstanding policies and interest
thereon at certain assumed rates, are calculated  to  be  sufficient to satisfy
policy and contract obligations. The actuarial factors used in determining such
reserves  are  based  on statutorily prescribed mortality tables  and  interest
rates.

      The reserves in the  consolidated financial statements in this report are
calculated based on GAAP and  differ  from  those  specified by the laws of the
various  states  and recorded in the statutory financial  statements  of  SMC's
insurance subsidiaries.  These  differences  arise  from  the  use of different
mortality  tables  and  interest  rate assumptions, the introduction  of  lapse
assumptions into the reserve calculation  and  the use of the net level premium
reserve  method  on  all insurance business. See note  1  to  the  consolidated
financial statements for reserve assumptions under GAAP.

      To determine policy  benefit  reserves for its life insurance and annuity
products,  SMC performs periodic studies  to  compare  current  experience  for
mortality,  interest   and  lapse  rates  with  projected  experience  used  in
calculating the reserves.  Differences  are reflected currently in earnings for
each  period.  SMC  historically  has  not  experienced   significant   adverse
deviations from its assumptions.

REINSURANCE

      Consistent with the general practice of the life insurance industry,  SMC
has  reinsured portions of the coverage provided by its insurance products with
other  insurance  companies  under  agreements  of  indemnity reinsurance.  The
policy risk retention limit on the life of any one individual  does  not exceed
$150,000.

      Indemnity  reinsurance  agreements are intended to limit a life insurer's
maximum loss on a particular risk  or  to  obtain  a greater diversification of
risk.  Indemnity reinsurance does not discharge the primary  liability  of  the
original  insurer  to  the  insured,  but  it  is  the practice of insurers for
statutory  accounting  purposes  (subject  to  certain  limitations   of  state
insurance  statutes) to account for risks which have been reinsured with  other
approved companies,  to  the  extent of the reinsurance, as though they are not
risks for which the original insurer  is  liable.  However,  under Statement of
Financial Accounting Standards No. 113 ("SFAS 113"), "Accounting  and Reporting
for  Reinsurance  of Short-Duration and Long-Duration Contracts" these  amounts
are added back to policy reserves and recorded as amounts due from reinsurers.

      Reinsurance ceded on life insurance policies to unaffiliated companies by
SMC in 1998, 1997 and 1996 represented 48.9%, 51.9% and 57.6%, respectively, of
gross combined individual  life  insurance  in  force at the end of such years.
Reinsurance assumed in the normal course from unaffiliated  companies by SMC in
1998,  1997  and  1996  represented .02% for all three years  of  net  combined
individual life insurance  in  force  excluding  reinsurance  from The Guardian
Insurance  and  Annuity  Company,  Inc. ("GIAC"), a subsidiary of The  Guardian
Group, New York, NY.

      The  following  is  reinsurance  ceded  information  for  in  force  life
insurance policies at December 31, 1998 (in thousands):

<TABLE>
<CAPTION>
                                                        % of Total
                                 Face Value of          Reinsurance           Reinsurance
INSURANCE COMPANY                LIFE POLICIES             CEDED              RECOVERABLE
<S>                          <C>                   <C>                   <C>
Lincoln National Life        385,183               31.3%                 2,546
Insurance Company
Swiss Re Life and Health     163,306               13.3%                 848
Security Life of Denver      147,718               12.0%                 990
</TABLE>

      Reinsured life insurance in force  at  December  31,  1998  is  ceded  to
insurers rated "A" or better by A.M. Best. SMC historically has not experienced
any material losses in collection of reinsurance receivables.

      Commencing  January  1,  1995,  SMC  began  to  reinsure a portion of its
annuity  business. The primary purposes of the reinsurance  agreement  were  to
limit the  net  loss  arising from large risks, maintain SMC's exposure to loss
within capital resources  and  provide  additional  capacity for future growth.
Furthermore, these reinsurance agreements have allowed  SMC to write volumes of
business  that  it  would  not  otherwise  have  been  able  to  write  due  to
restrictions  based  on  its  ratio of surplus to liabilities as determined  by
regulatory authorities in the State  of Florida. By reinsuring a portion of the
annuity business, the liability growth  is slowed, thereby avoiding the erosion
of surplus that can occur in periods of increasing  sales.  If  SMC's  ratio of
surplus to liabilities falls below 4%, the State of Florida could prohibit  SMC
from  writing  new  business  in  Florida.  SMC's  largest annuity reinsurer at
December  31,  1998,  Winterthur  Life  Re  Insurance  Company  ("Winterthur"),
represented  $33.7  million,  or 56.4% of total reinsurance  recoverable,  $6.6
million of premium deposits ceded  in  1998  and  is rated "A" ("Excellent") by
A.M. Best. From January 1, 1996 to March 31, 1996,  Standard  Life  ceded a 50%
quota-share portion of its annuity business.  Effective April 1, 1996, Standard
Life  reduced it to 25% and effective October 1, 1998, discontinued ceding  its
annuity  business.   This  reduction  was  possible  since  the  surplus strain
experienced  by  Standard  Life  was  not  as  great as originally anticipated.
Winterthur limits dividends and other transfers  by  Standard  Life  to  SMC or
affiliated  companies  if adjusted surplus is less than 5.5% of admitted assets
or $31.5 million at December 31, 1998.

      On  March  18,  1996,   Standard   Life   completed  the  sale  of  First
International  to GIAC and received proceeds of $10.4  million  including  $1.5
million for the charter and licenses.  Standard Life realized a net pretax gain
of $1.0 million  and  a  tax  benefit  of  $1.4  million  on  the  sale.  First
International, Standard Life and GIAC have entered into a series of reinsurance
and  other  agreements  that include provisions for Standard Life to administer
First International policies  in  force  at  the date of sale, and for Standard
Life to continue to receive the profit stream  from certain First International
policies in force effective January 1, 1996.

      Effective  January  1,  1996, GIAC entered into  a  modified  coinsurance
indemnity reinsurance agreement  with  Standard  Life  with respect to Blocks I
(ordinary  life policies issued in New York and New Jersey)  and  II  (ordinary
life policies  not  issued  in  New  York  and  New  Jersey).  Pursuant to this
agreement, Standard Life administers the policies in both Block I and Block II.
Under  the  terms  of the agreement, Standard Life assumed approximately  $18.8
million of reserves  for  Block I and Block II from GIAC as of January 1, 1996.
During 1996, Standard Life  incurred and paid experience rating refunds to GIAC
on Block I for profits earned  in  excess  of  specified amounts. These refunds
were calculated and paid on a quarterly basis. As  a result, the economic risks
and benefits associated with Block I remained with GIAC.  Effective  January 1,
1997, GIAC and Standard Life agreed to terminate the Block I agreement.

      Savers  Life  issued  and  marketed medicare supplement policies in  1998
including the time period from March  12,  1998, the acquisition date of Savers
Life, through July 1, 1998, when the medicare  supplement business was sold. In
connection  with  the  sale of the Medicare supplement  business,  Savers  Life
received an initial statutory ceding allowance of $4.2 million which was offset
by a reserve reduction of $1.6 million and write off of present value of future
profits of $2.6 million  and  resulted  in no gain or loss for GAAP.  Under the
terms of the reinsurance agreement, Savers  Life  will  administer the Medicare
supplement  business through  September 1, 1999 and will receive administration
fee  income  as  a  result  of  this  transaction.  The  consummation  of  this
transaction  resulted  in  the  Company  exiting  from  the Medicare supplement
business it acquired with the Savers Life acquisition.

      In  order  to write an increasing amount of new business while continuing
to meet the statutory  requirements  of  the  states  in  which it conducts its
insurance operations, it has been necessary for Dixie Life  to  utilize various
forms  of  surplus  relief.  The  principal  source of surplus relief has  been
financial  reinsurance  agreements,  which for GAAP  purposes  are  treated  as
financing arrangements, but for statutory  accounting  purposes provide reserve
reductions that, in equal amount, increase statutory surplus.  Dixie Life has a
financial reinsurance agreement that entitles it to a reduction  of $.9 million
to  its  statutory  reserves  at  December  31,  1998,  with the amount of  the
reduction decreasing each quarter by the amount of profit  generated  to  Dixie
Life by the underlying block of business.

COMPETITION

      The life insurance industry is highly competitive and consists of a large
number  of  both  stock  and  mutual  insurance  companies,  many of which have
substantially greater financial resources, broader and more diversified product
lines  and  larger staffs than those possessed by SMC. There are  approximately
2,000 life insurance  companies  in the United States which may offer insurance
products  similar  to  those marketed  by  SMC.  Competition  within  the  life
insurance industry occurs  on  the  basis  of,  among  other things, i) product
features such as price and interest rates, ii) perceived financial stability of
the  insurer, iii) policyholder service, iv) name recognition  and  v)  ratings
assigned  by  insurance  rating  organizations.  Additionally, when SMC bids on
companies  it  wishes  to acquire, it typically is in  competition  with  other
entities.

      SMC must also compete  with  other  insurers  to  attract  and retain the
allegiance  of  agents.  SMC believes it has been successful in attracting  and
retaining agents because it  has  been  able  to offer a competitive package of
innovative products, competitive commission structures,  prompt policy issuance
and responsive policyholder service. Because most annuity  business  written by
life companies is through agents, management believes that competition  centers
more  on the strength of the agent relationship rather than on the identity  of
the insurer.

      Competition  also  is  encountered  from  the  expanding number of banks,
securities  brokerage  firms  and  other  financial  intermediaries  which  are
marketing insurance products and which offer competing products such as savings
accounts  and  securities. In the case of banks, these insurance  products  are
sold for non-affiliate  insurance companies in return for a sales fee. A change
in legislation may increase  interest  on  the  part  of banks to begin selling
annuities or to expand their existing efforts to sell annuities.  The  decision
could result in a partial shift in the distribution of annuities from insurance
agents  to  national banks, which could have a negative impact in the Company's
sales.  The Company began distributing annuities through financial institutions
as a result of the acquisition of Savers Marketing in March 1998.

      The unit-linked life insurance market in Europe is highly competitive and
consists of many  companies  domiciled  in  the United Kingdom and its offshore
centers,  as  well  as  many companies in Luxembourg  and  Ireland  which  sell
products similar to those  of  SMI.   SMI  is  able  to  develop its share of a
competitive  market  by  developing  strong  relationships  with   high-quality
independent intermediaries and by continual innovation in the design  of  niche
market products.

      Financial institutions, school districts, marketing companies, agents who
market  insurance  products  and policyholders use the ratings of an insurer as
one  factor in determining which  insurer's  annuity  to  market  or  purchase.
Standard  Life  and  Dixie  Life have a rating of "B+" and "B", respectively by
A.M. Best.  A rating of "B+"  is  assigned  by A.M. Best to companies which, in
their opinion, have achieved very good overall performance when compared to the
standards established by A.M. Best, and have  a  good  ability  to  meet  their
obligations  to  policyholders  over a long period of time.  A rating of "B" is
assigned by A.M. Best to companies  which, in their opinion, have achieved good
overall performance when compared to  the  standards  established by A.M. Best.
According to A.M. Best, these companies generally have  an  adequate ability to
meet  their  obligations  to  policyholders,  but their financial  strength  is
vulnerable to unfavorable changes in underwriting  or  economic  conditions. In
evaluating  a company's financial and operating performance, A.M. Best  reviews
the company's  profitability,  leverage  and liquidity as well as the company's
book of business, the adequacy and soundness  of  its  reinsurance, the quality
and estimated market value of its assets, the adequacy of  its reserves and the
experience and competence of its management. A.M. Best's ratings are based upon
factors relevant to policyholders, agents, insurance brokers and intermediaries
and are not directed to the protection of investors. Generally, rating agencies
base their ratings on information furnished to them by the issuer  and on their
own  investigations, studies and assumptions by the rating agencies.  There  is
no  assurance  that any particular rating will continue for any given period of
time or that it  will  not be changed or withdrawn entirely if, in the judgment
of the rating agency, circumstances  so  warrant.  Although  a higher rating by
A.M.  Best  or  another  insurance rating organization could have  a  favorable
effect on Standard Life and  Dixie  Life's  business,  management believes that
Standard  Life  and  Dixie  Life  are  able to compete on the  basis  of  their
competitive  crediting  rates,  asset  quality,  strong  relations  with  their
independent agents and the quality of service to their policyholders.

FEDERAL INCOME TAXATION

      The life insurance and annuity products  marketed  and issued by Standard
Life  and  Dixie  Life generally provide the policyholder with  an  income  tax
advantage, as compared  to  other  saving  investments  such as certificates of
deposit  and bonds, in that income taxation on the increase  in  value  of  the
product is  deferred  until  receipt  by  the  policyholder. With other savings
investments, the increase in value is taxed as earned. Life insurance benefits,
which accrue prior to the death of the policyholder,  and  annuity benefits are
generally  not  taxable  until  paid  and  life  insurance  death benefits  are
generally  exempt  from  income tax. The tax advantage for life  insurance  and
annuity products is provided  in  the  Internal  Revenue  Code  ("IRC"), and is
generally  followed in all states and other United States taxing jurisdictions.
Accordingly,  it  is  subject to change by Congress and the legislatures of the
respective taxing jurisdictions.

<PAGE>
      SMC, Standard Marketing  and other U.S. non-insurance subsidiaries file a
consolidated  return for federal  income  tax  purposes.   Beginning  in  1997,
Standard Life and  Dixie  Life  were  eligible to file a life/life consolidated
return.  As such, Standard Life and Dixie  Life  filed a life/life consolidated
return  for  1997  and  plan to file a consolidated return  for  1998.   As  of
December  31,  1998,  SMC, Standard  Marketing  and  other  U.S.  non-insurance
subsidiaries had consolidated net operating loss carryforwards of approximately
$9.4 million for tax return purposes which expire from 2005 to 2012.

      At December 31, 1998,  the  Standard  Life  consolidated  return  had tax
return  net  operating  loss carryforwards of approximately $4.1 million, which
expire in 2010 and 2018.   As a result of the change in ownership of Midwestern
Life,  $1.1 million of these  loss  carryforwards  are  subject  to  an  annual
limitation of $.7 million.  These carryforwards will be available to reduce the
taxable  income  of  the  Standard  Life  consolidated  return.   The change in
ownership  of  Savers  Life  and  Midwestern Life will not result in additional
limitations on the use of the loss carryforwards available to Standard Life.

      Standard Management International  is  a Luxembourg holding company which
is  currently  exempt from Luxembourg income tax.  Premier  Life  (Bermuda)  is
exempt from income  tax until March 2016 pursuant to a decree from the Minister
of Finance. Premier Life  (Luxembourg) is subject to Luxembourg income taxation
(statutory corporate rate of  37.45%)  and a capital tax of approximately 1% of
its net equity. At December 31, 1998, Premier Life (Luxembourg) had accumulated
corporate income tax loss carryforwards  of  approximately $2.6 million, all of
which may be carried forward indefinitely. To  the  extent  that such income is
taxable under U.S. law, it will be included in SMC's consolidated return.

INFLATION

      The  primary  direct  effect  on  SMC  of  inflation  is the increase  in
operating  expenses.  A large portion of SMC's operating expenses  consists  of
salaries which are subject  to  wage  increases at least partly affected by the
rate  of  inflation.  SMC  attempts to minimize  the  impact  of  inflation  on
operating expenses through programs to improve productivity.

      The rate of inflation  also  has an indirect effect on SMC. To the extent
that the government's economic policy to control the level of inflation results
in  changes  in interest rates, SMC's  new  sales  of  insurance  products  and
investment income  are  affected.  Changes  in the level of interest rates also
have an effect on interest spreads, as investment earnings are reinvested.

FOREIGN OPERATIONS AND CURRENCY RISK

      SMI  policyholders  invest in assets denominated  in  a  broad  range  of
currencies. Policyholders effectively  bear the currency risk, if any, as these
investments  are  matched  by  policyholder   separate   account   liabilities.
Therefore, their investment and currency risk is limited to premiums  they have
paid. Policyholders are not permitted to invest directly into options,  futures
and derivatives.

      SMI  could  be exposed to currency fluctuations if currencies within  the
conventional investment portfolio or certain actuarial reserves are mismatched.
The assets and liabilities  of  this portfolio and the reserves are continually
matched by the company and at regular  intervals by the independent actuary. In
addition, Premier Life (Luxembourg's) stockholder's  equity  is  denominated in
Luxembourg  francs.  Premier  Life  (Luxembourg) does not hedge its translation
risk because its stockholder's equity  will remain in Luxembourg francs for the
foreseeable future and no significant realized foreign exchange gains or losses
are anticipated. At December 31, 1998, there  is  an immaterial unrealized loss
from foreign currency translation.

      Due to the nature of unit-linked products issued  by SMI, which represent
over 94% of the SMI portfolio, the investment risk rests with the policyholder.
Investment risk for SMI exists where investment decisions are made with respect
to  the  remaining  traditional  business  and for the assets  backing  certain
actuarial and regulatory reserves. The investments underlying these liabilities
mostly represent short term investments and fixed maturity securities which are
normally bought and/or disposed of only on the advice of independent consulting
actuaries who perform an annual exercise comparing  anticipated  cash  flows on
the insurance portfolio with the cash flows from the fixed maturity securities.
Any  resulting  material foreign currency mismatches are then covered by buying
and/or selling the securities as appropriate.

REGULATORY FACTORS

      SMC's insurance subsidiaries are subject to significant regulation by the
insurance regulatory  authorities  in  the  jurisdictions  in  which  they  are
domiciled  and  the  insurance  regulatory bodies in the other jurisdictions in
which they are licensed to sell insurance.  The  purpose  of such regulation is
primarily  to  ensure  the  financial stability of insurance companies  and  to
provide safeguards for policyholders  rather  than  to  protect the interest of
stockholders. The insurance laws of various jurisdictions  establish regulatory
agencies  with  broad  administrative  powers relating to i) the  licensing  of
insurers  and  their  agents,  ii)  the regulation  of  trade  practices,  iii)
management  agreements, iv) the types  of  permitted  investments  and  maximum
concentration, v) deposits of securities, vi) the form and content of financial
statements,  vii)   premiums   charged  by  insurance  companies,  viii)  sales
literature and insurance policies, ix) accounting practices and the maintenance
of  specified  reserves,  and  x)  capital   and   surplus.    SMC's  insurance
subsidiaries  are  required  to  file detailed periodic financial reports  with
supervisory agencies in certain jurisdictions.

      Most states have also enacted  legislation  regulating  insurance holding
company  activities including acquisitions, extraordinary dividends,  terms  of
surplus debentures,  terms of affiliate transactions and other related matters.
The insurance holding company laws and regulations vary by state, but generally
require an insurance holding  company  and  its  insurance company subsidiaries
licensed to do business in the state to register and  file certain reports with
the regulatory authorities, including information concerning capital structure,
ownership, financial condition, certain intercompany transactions  and  general
business  operations.  State holding company laws also require prior notice  or
regulatory agency approval of certain material intercompany transfers of assets
within the holding company  structure.   Recently  a number of state regulators
have considered or have enacted legislation proposing  that change, and in many
cases increase, the authority of state agencies to regulate insurance companies
and  holding  companies.  For additional information on state  laws  regulating
insurance company  subsidiaries, refer to "Management's Discussion and Analysis
of Financial Condition  and  Results  of  Operations  -  Liquidity  and Capital
Resources", and Note 13 to the Company's consolidated financial statements.

      Under  Indiana  insurance  law,  Standard Life may not enter into certain
transactions,  including  management agreements  and  service  contracts,  with
members of its insurance holding company system, including Standard Management,
unless Standard Life has notified  the  Indiana  Department of Insurance of its
intention  to  enter  into  such  transactions and the  Indiana  Department  of
Insurance has not disapproved of them  within  the  period specified by Indiana
law. Among other things, such transactions are subject  to the requirement that
their terms and charges or fees for services performed be fair and reasonable.

      The  Indiana insurance laws and regulations require  that  the  statutory
surplus of Standard  Life  following any dividend or distribution be reasonable
in relation to its outstanding liabilities and adequate to its financial needs.
The Indiana Department of Insurance  may  bring  an action to enjoin or rescind
the payment of a dividend or distribution by Standard Life that would cause its
statutory surplus to be unreasonable or inadequate under this standard.

      Most states, including Indiana, require administrative  approval  of  the
acquisition  of  10%  or more of the outstanding shares of an insurance company
incorporated in the state  or the acquisition of 10% or more of the outstanding
shares  of  an  insurance  holding   company   whose  insurance  subsidiary  is
incorporated  in the state. The request for approval  must  be  accompanied  by
detailed  information   concerning  the  acquiring  parties  and  the  plan  of
acquisition. The acquisition  of  10%  of such shares is generally deemed to be
the acquisition of "control" for the purpose  of  the holding company statutes.
However, in many states the insurance authorities may  find  that  "control" in
fact does or does not exist in circumstances in which a person owns or controls
either a lesser or a greater amount of securities.

      In  some instances many state regulatory authorities require deposits  of
assets for  the  protection  of policyholders either in those states or for all
policyholders. At December 31,  1998,  securities representing approximately 4%
of the book value of SMC's U.S. insurance subsidiaries' invested assets were on
deposit with various state treasurers or custodians. Such deposits must consist
of securities that comply with the standards  that  the  particular  state  has
established. Assets of SMI of $6.5 million at December 31, 1998 were held by  a
custodian bank approved by the Luxembourg regulatory authorities to comply with
local insurance laws.

      In  recent years, the NAIC and state insurance regulators have reexamined
existing laws  and  regulations  and  their application to insurance companies.
This reexamination has focused on i) insurance  company investment and solvency
issues,  ii)  risk-based capital guidelines, iii) assumption  reinsurance,  iv)
interpretations  of  existing  laws,  v)  the  development of new laws, vi) the
interpretation  of  nonstatutory  guidelines,  vii)   the   standardization  of
statutory  accounting rules and viii) the circumstances under  which  dividends
may be paid.  The  NAIC  has  encouraged  states  to  adopt  model NAIC laws on
specific  topics  such  as  holding  company regulations and the definition  of
extraordinary dividends. It is not possible  to  predict  the  future impact of
changing state regulation on the operations of SMC.

      The NAIC, as well as Indiana and Mississippi have each adopted Risk-Based
Capital  ("RBC")  requirements  for  life  and  health  insurance companies  to
evaluate  the  adequacy  of  statutory  capital  and  surplus  in  relation  to
investment  and  insurance  risks.   State  insurance  regulators use  the  RBC
requirements  as  regulatory  tools  only, which aid in the  identification  of
insurance companies that could potentially lack sufficient capital.  Regulatory
compliance  is  determined  by  a ratio (the  "RBC  Ratio")  of  the  company's
regulatory total adjusted capital to its authorized control level RBC.  The two
components of the RBC Ratio are defined  by  the  NAIC.   The  RBC ratios which
require corrective action as follows:

LEVEL                  RBC RATIO          CORRECTIVE ACTION
Company Action          1.5 - 2           Company is required to submit a plan
                                             to improve its RBC Ratio
Regulatory Action       1 - 1.5           Regulators will order corrective
                                             actions
Authorized Control      0.7 - 1           Regulators are authorized to take
                                             control of the company
Mandatory Control       less than 0.7     Regulators must take over the company

      At December 31, 1998, the RBC Ratios of Standard Life and Dixie Life were
both  at  least  two and a half times greater than the levels at which  company
action is required.   If  these  RBC Ratios should decline in the future, those
subsidiaries might be subject to increased regulatory supervision and decreased
ability to pay dividends, management  fees  and  surplus  debenture interest to
SMC.

      On the basis of annual statutory statements filed with  state regulators,
the  NAIC  calculates  twelve  financial  ratios to assist state regulators  in
monitoring the financial condition of insurance  companies.  A "usual range" of
results  for  each ratio is used as a benchmark.  In  the  past,  variances  in
certain ratios  of  our  insurance subsidiaries have resulted in inquiries from
insurance departments to which  we have responded.  Such inquiries did not lead
to any restrictions affecting the Company's operations.

   SMC  attempts  to manage its assets  and  liabilities  so  that  income  and
principal payments received from investments are adequate to meet the cash flow
requirements  of  its   policyholder  liabilities.  The  cash  flows  of  SMC's
liabilities  are  affected  by  actual  maturities,  surrender  experience  and
credited interest rates.  SMC  periodically  performs  cash  flow studies under
various interest rate scenarios to evaluate the adequacy of expected cash flows
from its assets to meet the expected cash requirements of its  liabilities. SMC
utilizes these studies to determine if it is necessary to lengthen  or  shorten
the  average  life  and  duration  of  its investment portfolio. Because of the
significant uncertainties involved in the  estimation  of  asset  and liability
cash  flows,  there  can  be  no assurance that SMC will be able to effectively
manage the relationship between its asset and liability cash flows.

   The   statutory   filings   of   SMC's    insurance   subsidiaries   require
classifications  of investments and the establishment  of  an  Asset  Valuation
Reserve ("AVR"), designed  to  stabilize  a company's statutory surplus against
fluctuations in the market value of stocks  and bonds, according to regulations
prescribed by the NAIC. The AVR consists of two  main  components:  a  "default
component"  to  provide  for  future  credit-related  losses  on  fixed  income
investments  and  an  "equity  component" to provide for losses on all types of
equity investments, including real  estate.  The  NAIC  requires  an additional
reserve, called the Interest Maintenance Reserve ("IMR"), which consists of the
portion  of  realized  capital  gains and losses from the sale of fixed  income
securities attributable to changes in interest rates. The IMR is required to be
amortized  against  earnings on a basis  reflecting  the  remaining  period  to
maturity of the fixed  income  securities  sold.  These  regulations affect the
ability of SMC's insurance subsidiaries to reflect future  investment gains and
losses in current period statutory earnings and surplus.

   The  amounts  related  to  AVR  and  IMR  for the insurance subsidiaries  at
December 31, 1998 are summarized as follows (in thousands):

                                                 Maximum
                                          AVR      AVR      IMR

               Standard Life...........$3,987   $5,605  $14,246
               Dixie Life.................252      308      155

      The annual addition to the AVR for 1998  is  20%  of  the maximum reserve
over  the  accumulated  balance.  If the calculated reserve with  current  year
additions exceeds the maximum reserve  amount,  the  reserve  is reduced to the
maximum  amount. For the year ended December 31, 1998, SMC's U.S.  subsidiaries
each made the required contribution to the AVR.

      Most jurisdictions require insurance companies to participate in guaranty
funds designed  to cover claims against insolvent insurers. Insurers authorized
to  transact  business   in   these  jurisdictions  are  generally  subject  to
assessments based on annual direct premiums written in that jurisdiction to pay
such claims, if any. These assessments  may  be deferred or forgiven under most
guaranty laws if they would threaten an insurer's  financial  strength  and, in
certain  instances,  may  be  offset  against  future  state premium taxes. The
incurrence and amount of such assessments have increased  in  recent  years and
may increase further in future years.  The likelihood and amount of all  future
assessments cannot be reasonably estimated and are beyond the control of SMC.

      As part of their routine regulatory oversight process, approximately once
every three to five years state insurance departments conduct periodic detailed
examinations  ("Examinations")  of the books, records and accounts of insurance
companies domiciled in their states.  Standard  Life  underwent  an Examination
during  1996  for  the five-year period ended December 31, 1995 and Dixie  Life
underwent an examination  during  1998  for the five-year period ended December
31, 1997. The final examination reports issued  by  the Indiana and Mississippi
Departments of Insurance did not raise significant issues.

      The federal government does not directly regulate the insurance business.
However,  federal  legislation and administrative policies  in  several  areas,
including pension regulation,  age  and  sex discrimination, financial services
regulation  and  federal  taxation,  do  affect  the  insurance  business.   In
addition, legislation has been introduced  from  time  to  time in recent years
which,  if  enacted,  could  result in the federal government assuming  a  more
direct role in the regulation of the insurance industry.

<PAGE>
      Congressional initiatives  have  been  introduced  which  are directed at
repeal of the McCarran-Ferguson Act (which exempts the "business  of insurance"
from  most  federal laws to the extent it is subject to state regulation),  and
judicial decisions have been issued which narrow the definition of "business of
insurance" for  McCarran-Ferguson  Act  purposes.  Current and proposed federal
measures may also significantly affect the insurance industry including removal
of barriers preventing banks from engaging in the insurance business.

EMPLOYEES

      As of March 15, 1999, SMC had 141 employees which  were  comprised of the
following:  Standard  Life  - 96 employees, SMI - 17 employees (9 of  whom  are
covered  by  a  collective  bargaining  agreement),  Standard  Marketing  -  10
employees,  Standard Management  -  10  employees  and  Savers  Marketing  -  8
employees.  SMC  believes  that its future success will depend, in part, on its
ability to continue to attract  and retain highly-skilled technical, marketing,
support and management personnel.  Management  believes  that  it has excellent
relations with its employees.

ITEM 2.  PROPERTIES

      DOMESTIC OPERATIONS.  SMC leases approximately 31,000 square  feet  in an
office building located at 9100 Keystone Crossing, Indianapolis, Indiana, under
the terms of a lease which expires on June 1, 2001. SMC entered into a lease on
March 31, 1997, for approximately 16,000 square feet in a warehouse located  at
2525  North  Shadeland, Indianapolis, Indiana, under the terms of a lease which
expires on September 30, 1999.

      Dixie Life  leased  approximately  1,000 square feet in an office complex
located  at  855 South Pear Orchard Road, Suite  305,  Ridgeland,  Mississippi,
under  the  terms  of  a lease  which expired on December 31, 1998. Dixie  Life
leases an office service area located at 1060 East County Line Road, Ridgeland,
Mississippi, under the terms of a lease that expires on June 30, 1999.

      Savers Marketing  leases  approximately  11,500  square feet in an office
building located at 8064 North Point Boulevard, Winston-Salem,  North Carolina,
under the terms of a lease that expires on September 30, 2001.

      INTERNATIONAL OPERATIONS.  SMI entered into a lease on November  17, 1997
for  approximately 4,500 square feet in an office building located at 13A,  rue
de Bitbourg, L-1273 Luxembourg, Grand Duchy of Luxembourg, under the terms of a
lease which expires on November 16, 2003.

ITEM 3.  LEGAL PROCEEDINGS

      John  J.  Quinn  resigned  as  an  officer  and director of SMC effective
April  15,  1997.   On  June 19, 1997, Mr. Quinn commenced  an  action  in  the
Superior  Court of Marion  County,  Indiana,  against  SMC  claiming  that  his
employment  agreement  contained  a  provision  to the effect that, following a
termination of his employment with SMC under certain  circumstances,  Mr. Quinn
would  be entitled to receive a lump sum payment equal to the amount determined
by multiplying  the number of shares of SMC Common Stock subject to unexercised
stock  options  previously  granted  by  SMC  to  Mr.  Quinn  on  the  date  of
termination, whether  or not such options were then exercisable, by the highest
per share fair market value  of  the  SMC  Common  Stock  on any day during the
six-month  period  ending  on  the  date of termination. Upon payment  of  such
amount, such unexercised stock options would be deemed to have been surrendered
and canceled. Mr. Quinn further claims  that his employment agreement contained
an additional provision that he would be entitled to receive a lump sum payment
equal  to  two  years of annual salary, following  termination  of  employment.
Mr. Quinn has asserted  to  SMC  that  he is entitled to a lump sum termination
payment of $1.7 million, and liquidated  damages not exceeding $3.3 million, by
virtue of his voluntarily leaving SMC's employment.

      SMC disputes Mr. Quinn's claims.  SMC  filed  its Answer and Counterclaim
against Mr. Quinn on September 11, 1997.  SMC's investigation  since the action
was  filed  revealed a basis for the termination of Mr. Quinn's employment  for
cause relative  to  after-acquired evidence.  On October 14, 1997, the Board of
Directors of SMC terminated Mr. Quinn for cause effective March 15, 1997.  Such
termination will also  be  argued  by  SMC  as a complete defense to all claims
asserted by Mr. Quinn.  The ultimate outcome  of the action cannot presently be
determined.  Accordingly, no provision for any  liability  that  may result has
been  made in the consolidated financial statements.  Management believes  that
the conclusion  of  such  litigation will not have a material adverse effect on
SMC's consolidated financial condition.

      In addition, SMC is involved  in  various legal proceedings in the normal
course  of  business.  In most cases, such  proceedings  involve  claims  under
insurance policies  or  other  contracts  of  SMC.  The outcomes of these legal
proceedings  are  not  expected  to  have  a material  adverse  effect  on  the
consolidated financial position, liquidity,  or future results of operations of
SMC based on SMC's current understanding of the relevant facts and law.

<PAGE>
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

      At the Company's Annual Meeting of Stockholders  held  on  June 10, 1998,
the following individuals were elected to the Board of Directors:

                             Shares For                     Shares Withheld
John J. Dillon               6,054,707                         90,508
Jerry E. Francis             6,039,211                         106,004
Ronald D. Hunter             6,052,182                         93,033
Edward T. Stahl              6,051,558                         93,657

      A total of 6,145,215 shares were present in person or by proxy at the
Annual Meeting of Stockholders.

EXECUTIVE OFFICERS

      The following table sets forth information concerning each of SMC's
executive officers:

  NAME             AGE              POSITION

Ronald D. Hunter   47  Chairman of the Board, Chief Executive Officer 
                          and President
Raymond J. Ohlson  48  Executive Vice President and Chief Marketing Officer
Paul B. Pheffer    47  Executive Vice President, Chief Financial Officer 
                          and Treasurer
Stephen M. Coons   57  Executive Vice President, General Counsel and Secretary
Edward T. Stahl    52  Executive Vice President and Chief Administrative 
                          Officer

      RONALD D. HUNTER  Mr. Hunter has been the Chairman of the Board, Chief
Executive Officer and President of SMC since its formation in June 1989 and the
Chairman of the Board and Chief Executive Officer of Standard Life since
December 1987. Previously, Mr. Hunter held several management and sales
positions in the life insurance industry with a number of companies including
Conseco, Inc. (1981-1986), Aetna Life & Casualty Company (1978-1981), United
Home Life Insurance Company (1975-1977) and Prudential Life Insurance Company
(1972-1975).

      RAYMOND J. OHLSON  Mr. Ohlson has served as Executive Vice President and
director of SMC since December 1993. He has served as President and director of
Standard Marketing since August 1991. Since June 1993, Mr. Ohlson has served as
President of Standard Life. Mr. Ohlson entered the life insurance business in
1971. While still in college, Mr. Ohlson qualified for the Million Dollar Round
Table and is now a life member. He earned his CLU designation in 1980.
Mr. Ohlson owned and operated Ohlson & Associates, an independent insurance
marketing organization, from 1984 to April 1994, when the assets of Ohlson &
Associates were acquired by Standard Marketing.

      PAUL ("PETE") B. PHEFFER  Mr. Pheffer has been Executive Vice President,
Chief Financial Officer and Treasurer of SMC since May 1997 and director of SMC
since June 1997. Prior to joining SMC, Mr. Pheffer was Senior Vice President --
Chief Financial Officer and Treasurer of Jackson National Life Insurance
Company from 1994 to 1996 and prior to that was Senior Vice President -- Chief
Financial Officer at Kemper Life Insurance Companies from 1992 to 1994.
Mr. Pheffer, a CPA, received his MBA from the University of Chicago in 1988.

      STEPHEN M. COONS  Mr. Coons has been a director of SMC since August 1989.
Mr. Coons has been General Counsel and Executive Vice President of SMC since
March 1993 and has been Secretary of SMC since March 1994. He was of counsel to
the law firm of Coons, Maddox & Koeller from March 1993 to December  1996.
Prior to March 1993, Mr. Coons was a partner with the law firm of Coons &
Saint. He has been practicing law for 28 years. Mr. Coons served as Indiana
Securities Commissioner from 1978 to 1983.

      EDWARD T. STAHL  Mr. Stahl has been an Executive Vice President of SMC
since its formation, has been a director of SMC from July 1989 and was
appointed Chief Administrative Officer in November 1998.  Mr. Stahl was
Secretary of SMC from June 1989 to March 1994. Mr. Stahl was President and
Chief Operations Officer of Standard Life from May 1988 to June 1993. He has
been a director of Standard Life since December 1987, and Executive Vice
President and Secretary since June 1993. Mr. Stahl has served in various
capacities in the insurance industry since 1966. He earned his FLMI designation
in 1981, and is a member of several insurance associations.

<PAGE>
                                       PART II

ITEM 5.  MARKET FOR SMC COMMON STOCK AND RELATED STOCKHOLDER MATTERS

   SMC Common Stock trades on NASDAQ under the symbol "SMAN." The following
table sets forth, for the periods indicated, the range of the high and low
sales prices of SMC Common Stock as reported by NASDAQ.  SMC has never paid
dividends on its Common Stock. At the close of business on March 15, 1999 there
were approximately 3,046 holders of record of the outstanding shares of SMC
Common Stock. Although SMC Common Stock is traded on Nasdaq, no assurance can
be given as to the future price of or the markets for the stock.

                                                                   SMC
                                                              COMMON STOCK
                                                            HIGH         LOW

1997
      Quarter ended March 31, 1997                         6.250       4.875
      Quarter ended June 30, 1997                          6.000       4.625
      Quarter ended September 30, 1997                     7.875       5.688
      Quarter ended December 31, 1997                      8.375       6.500
1998
      Quarter ended March 31, 1998                         7.500       6.125
      Quarter ended June 30, 1998                          7.625       7.000
      Quarter ended September 30, 1998                     7.563       6.625
      Quarter ended December 31, 1998                      7.000       6.000


<PAGE>
ITEM 6.  SMC SELECTED HISTORICAL FINANCIAL DATA
         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

   The following historical financial data of SMC was derived from its audited
consolidated financial statements.  This historical financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the SMC Consolidated Financial
Statements and related Notes.

<TABLE>
<CAPTION>
                                                                   Year Ended December 31
<S>                                <C>                 <C>               <C>                <C>               <C>          
                                   1998                1997              1996               1995              1994
STATEMENT OF OPERATIONS DATA:
Premium income                     $14,479      (d)    $7,100            $10,468     (c)    $5,504            $4,565
Investment activity:
   Net investment income           34,580              29,516            20,871             18,517            16,057
   Net realized investment gains   353                 396               1,302              688               558
Total revenues                     62,870              46,611            40,205             30,238            26,518
Interest expense and financing     2,955               2,381             805                118               47
costs
Total benefits and expenses        56,559              43,349            36,670      (c)    28,682            30,032
Income (loss) before income taxes,
   extraordinary gain (charge) and
   cumulative effect of change in  6,311               3,262             3,535              1,556             (3,514)
   accounting principle
Income (loss) before extraordinary
gain
   (charge) and cumulative effect  4,681               2,645             4,265              1,313             (3,436)
   of change in accounting
   principle
Net income (loss)                  4,681               2,645             4,767              1,313             (3,436)
Operating income (a)               4,448               2,384             1,174              461               293
PER SHARE DATA:
Income (loss) per share before
extraordinary
   gain (charge) and cumulative    $.68                $.54              $.88               $.25              $(.62)
   effect of change in accounting  
   principle
Net income (loss)                  .68                .54                .98                .25               (.62)
Net income (loss), assuming        .62                .48                .91                .25               (.61)
  dilution                    
Operating income (a)               .65                .49                .24                .09               .05
Operating income, assuming         .58                .43                .21                .09               .05
  dilution (a)              
Weighted average common shares
   outstanding, assuming dilution  9,363,763           5,591,217         5,549,057          5,345,937         5,663,187
Book value per common share        $8.64               $8.88             $7.95              $7.73             $4.27
Book value per common share
excluding
   unrealized gain (loss) on       $8.43               $8.44             $8.09              $7.23             $6.81
   securities available for sale
Common shares outstanding          7,641,454           4,876,490         5,024,270          5,205,425         5,291,455
BALANCE SHEET DATA (at year end):
Invested assets                    $592,123            $398,782          $370,138           $280,597          $224,926
Assets held in separate accounts   190,246             148,064           128,546            122,705           94,301
Total assets                       956,150             668,992           628,413            479,598           373,524
Long-term debt, notes payable and
capital lease obligations          35,000              26,141            20,697             4,191             695
Series A preferred stock           6,530               --                --                 --                --
Class S preferred stock            --                  --                1,757              --                --
Shareholders' equity               66,042              43,313            39,919             40,242            22,610
Shareholders' equity, excluding
unrealized gain (loss) on          64,382              41,142            40,665             37,660            36,021
securities available for sale
Ratio of debt to total             33%                 38%               33%                9%                3%
capitalization (b)
</TABLE>
<PAGE>
                NOTES TO SMC SELECTED HISTORICAL FINANCIAL DATA
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


   Comparison  of consolidated financial information is significantly  affected
   by the acquisitions  of  Dixie  Life  on  October  2,  1995,  Shelby Life on
   November 8, 1996, Savers Life on March 12, 1998, Midwestern Life  on October
   30, 1998 and on the disposal of First International on March 18, 1996. Refer
   to the notes to the consolidated financial statements in this report  for  a
   description of business combinations.

(a)Operating  income  represents  income  before  extraordinary gains (charge),
   excluding net realized investment gains (less income  taxes relating to such
   gains),  gain  on  disposal  of subsidiary and class action  litigation  and
   settlements.

(b)Total  capitalization is the sum  of  SMC's  debt  (long  term  debt,  notes
   payable and  capital  lease  obligations),  redeemable  preferred stock  and
   shareholders' equity.

(c)Includes recapture of premiums ceded and an increase in benefits  due  to an
   increase in reserves of $4.2 million due to the termination and recapture of
   a reinsurance agreement with National Mutual Life Insurance Company.

(d)Includes  medicare supplement premiums of $6.0 million related to the Savers
   Life acquisition.  This business was sold effective July 1, 1998.



<PAGE>
ITEM 7.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
         RESULTS OF OPERATIONS

   The  following  discussion  highlights  the  principal factors affecting the
results of operations and the significant changes in balance sheet items of SMC
on a consolidated basis for the periods listed, as  well as SMC's liquidity and
capital  resources.  This  discussion should be read in  conjunction  with  the
accompanying Consolidated Financial  Statements,  related  Notes  and  selected
historical financial data.

FORWARD-LOOKING STATEMENTS

   All  statements,  trend  analyses,  and  other information contained in this
Annual  Report on Form 10-K or any document incorporated  by  reference  herein
relative  to  markets  for  the  Company's products and trends in the Company's
operations or financial results, as  well  as  other statements including words
such as "anticipate,"  "believe,"  "plan," "estimate,"  "expect," "intend," and
other  similar  expressions,  constitute forward-looking statements  under  the
Private  Securities  Litigation reform  Act  of  1995.   These  forward-looking
statements are subject  to  known  and  unknown  risks, uncertainties and other
factors which may cause actual results to be materially  different  from  those
contemplated by the forward-looking statements.  Such factors include, but  are
not  limited  to:  (1) general economic conditions and other factors, including
prevailing interest  rate  levels,  stock  market  performance  and health care
inflation,  which  may affect the ability of the Company to sell its  products,
the  market  value  of  the  Company's  investments  and  the  lapse  rate  and
profitability of the  Company's  policies; (2) the Company's ability to achieve
anticipated levels of operational  efficiencies at recently acquired companies,
as well as through other cost-saving  initiatives; (3) customer response to new
products,  distribution  channels  and marketing  initiatives;  (4)  mortality,
morbidity, usage of health care services and other factors which may affect the
profitability of the Company's insurance  products;  (5) changes in the Federal
income tax laws and regulation which may affect the relative  tax advantages of
some of the Company's products; (6) increasing competition in the  sale  of the
Company's products; (7) regulatory changes or actions, including those relating
to  regulation  of financial services affecting bank sales and underwriting  of
insurance products,  regulation  of  the  sale,  underwriting  and  pricing  of
insurance   products,  and  health  care  regulation  affecting  the  Company's
supplemental  health  insurance  products;  (8)  the  availability and terms of
future acquisitions; and (9) the risk factors or uncertainties listed from time
to time in any document incorporated by reference herein.

GENERAL

   SMC acquired Shelby Life on November 8, 1996, Savers  Life on March 12, 1998
and Midwestern Life on October 30, 1998. These acquisitions  were accounted for
using  the  purchase  method of accounting.  Therefore, these subsidiaries  are
included in the SMC Consolidated  Financial  Statements  commencing  with their
respective acquisition effective dates.

   PRODUCT  PROFITABILITY.  Margins on life insurance and annuity products  are
affected by interest rate fluctuations. Rising interest rates would result in a
decline in the  market  value  of  assets.  However, as there are positive cash
flows  from  renewal premiums, investment income  and  maturities  of  existing
assets, the need  for  early disposition of investment assets to meet operating
cash flow requirements would  be  unlikely.  Rising  interest  rates would also
result  in  available  cash  flows  from  maturities  being invested at  higher
interest rates, which would help support a gradual increase in new business and
renewal interest rates on interest-sensitive products.  A sharp, sudden rise in
the interest rate environment without a concurrent increase  in crediting rates
could result in higher surrenders, particularly for annuities.  The  effect  of
surrenders  would  be  to  reduce  earnings over the long term. Earnings in the
period  of  the  surrender could increase  or  decrease  depending  on  whether
surrender charges  were  applicable  and whether such charges differed from the
write-off of related deferred acquisition  costs  or  present  value  of future
profits.

   When  interest  rates  fall,  SMC  generally attempts to adjust the credited
interest rates subject to competitive pressures.  Although  SMC  believes  that
such  strategies  will  continue  to  permit it to achieve a positive spread, a
significant decline in the yield on SMC's  investments  could  adversely affect
the results of operations and financial condition of SMC.

   PURCHASED  INSURANCE  BUSINESS.  In accordance with industry practice,  when
SMC purchases additional insurance  business,  it  assigns  a  portion  of  the
purchase  price,  called  the  present value of future profits, to the right to
receive future cash flows arising  from existing insurance policies. This asset
is recorded when the business is purchased  at  the  value  of projected future
cash  flows on existing policies, less a discount to present value.  As  future
cash flows  emerge, they are treated as a recovery of this asset. Therefore, if
cash flows emerging  from  the purchased or recaptured business during a period
exactly equal the projections, they are offset by that period's amortization of
the cost of the policies purchased.  In  that  event, the only income statement
effect from the purchased business is the realization  of the discount that was
initially deducted from the asset to reflect its present  value. Changes in the
future annual amortization of this asset are not expected to have a significant
effect  on  the  results of operations, because the amount of  amortization  is
expected to be equal  to  the profits emerging from the purchased policies, net
of interest on the unrecovered  present  value  of future profits balance. This
asset is amortized over the expected life of the  related  policies  purchased.
Present  value  of  future  profits  is  increased for the estimated effect  of
realizing unrealized investment losses and  decreased  for the estimated effect
of realizing unrealized investment gains.

   In selecting the interest rate to calculate the discounted  present value of
the projected future profits, SMC uses the risk rate of return it needs to earn
in order to invest in the business being acquired or recaptured.

<PAGE>
   In  determining  this  required  risk  rate  of  return,  SMC considers  the
following factors:

   <circle>The  magnitude  of the risks associated with each of  the  actuarial
         assumptions  used  in  determining  expected  future  cash  flows  (as
         described above).

   <circle>The  cost  of  the capital  required  to  fund  the  acquisition  or
         recapture.

   <circle> The likelihood of changes in projected future cash flows that might
         occur if there are changes in insurance regulations and tax laws.

   <circle>The acquired company's  compatibility with other SMC activities that
         may favorably affect future cash flows.

   <circle>The complexity of the acquired company or recaptured business.

   <circle>Recent prices (i.e., discount  rates used in determining valuations)
         paid by others to acquire or recapture similar blocks of business.

   The discount rate selected may affect subsequent earnings in those instances
where  the  purchase price of the policies exceeds  the  value  of  net  assets
acquired (including  the  value  of  future  profits discounted at the selected
interest rate). Selection of a lower (or higher)  discount  rate  will increase
(or  decrease) the portion of the purchase price assigned to the present  value
of future cash flows and will result in an offsetting decrease (or increase) in
the amount of the purchase price assigned to goodwill. The effect on subsequent
earnings  caused  by this variation in purchase price allocation will depend on
the characteristics  of  the policies purchased. For products where the profits
emerge at relatively constant  levels  over  an  extended  period  of time (for
example,  most of SMC's immediate and deferred annuities), use of a lower  rate
may result  in  an  increase  in  reported earnings in the early years after an
acquisition followed by a decrease  in  earnings  in  later years. For products
where profits emerge over a shorter period of time or in  amounts that decrease
over  the life of the product (for example, ordinary and term  life  products),
selection  of  a  lower  rate  will  generally result in a decrease in reported
earnings in the early years after an acquisition  followed  by  an  increase in
reported earnings in later years. For SMC, the majority of the cost of policies
purchased relates to ordinary life products and the balance to deferred annuity
products.

   The percentage of future expected net amortization of the beginning  balance
of  the  present  value  of  future profits before the effect of net unrealized
gains and losses, based on the  present value of future profits at December 31,
1998 and current assumptions as to future events on all policies in force, will
be between 6% and 9% in each of the years 1999 through 2003.

   SMC  used a 13% discount rate to  calculate  the  present  value  of  future
profits on  business of the Savers Life and Midwestern Life acquisitions.  Each
is being amortized  over  20 years based on the mix of their respective annuity
and life business.

   For more information related to Purchased Insurance Business refer to Note 4
to the Consolidated Financial Statements.

   PRODUCED INSURANCE BUSINESS.   Insurance  products  generate  two  types  of
profit  streams:  (i)  from  the  excess  of investment income earned over that
credited to the policyholder and (ii) from the excess of premiums received over
costs  incurred  for  policy  issuance,  administration  and  mortality.  Costs
incurred  in  issuing  new  policies  are deferred  and  recorded  as  deferred
acquisition costs ("DAC"), which are amortized  using  present value techniques
so  that  profits  are  realized in proportion to premium revenue  for  certain
products and estimated gross  profits  for certain other products. Profits from
all of these elements are recognized over the lives of the policies; no profits
are recorded at the time the policies are issued.

   Amortization of DAC was $2.7 million,  $1.5 million and $1.2 million for the
years ended December 31, 1998, 1997 and 1996,  respectively.  The  increase  in
current   year   amortization   expense   resulted   primarily  from  increased
amortization of DAC as gross profits from business sold  in  recent years began
to emerge. DAC is generally amortized over the expected lives  of the policies,
a period of approximately 20 years, in a constant relationship to  the  present
value  of  estimated  future  gross  profits. Interest is being accreted at the
projected crediting rate on the policies, 7% during year one, 6.5% in year two,
5.5% in year three and 5% thereafter.   DAC  is  increased  for  the  estimated
effect  of  realizing  unrealized  investment  losses  and  decreased  for  the
estimated  effect of realizing unrealized investment gains. The offset to these
amounts is recorded  directly  to  shareholders'  equity,  net of taxes. Future
expected amortization of DAC for the next five years before  the  effect of net
realized and unrealized gains and losses, based on DAC at December 31, 1998 and
current assumptions, is as follows (in thousands):

                      1999       2000        2001       2002       2003

Gross amortization   $5,771     $5,450      $4,940     $4,384     $3,874
Interest accreted     1,489      1,191         932        742        601
Net amortization     $4,282     $4,259      $4,008     $3,642     $3,273

      The   amounts  included  in  the  foregoing  table  do  not  include  any
amortization  of DAC resulting from the sale of new products after December 31,
1998. Any changes  in future annual amortization of this asset are not expected
to have a significant  effect  on  results  of operations because the amount of
amortization is expected to be proportionate  to  the profits from the produced
policies, net of interest on DAC.

      VARIANCES  BETWEEN  ACTUAL AND EXPECTED PROFITS.   Actual  experience  on
purchased and produced insurance  may  vary from projections due to differences
in   renewal   premiums  collected,  investment   spreads,   mortality   costs,
persistency, administrative  costs  and  other factors. Variances from original
projections, whether positive or negative,  are  included in net income as they
occur. To the extent that these variances indicate  that future experience will
differ  from  the  estimated  profits  reflected  in  the  capitalization   and
amortization  of  the  cost  of  policies  purchased  or  the  cost of policies
produced, current and future amortization rates may be adjusted.

      ACCOUNTING  FOR  ANNUITIES  AND  UNIVERSAL  AND  INTEREST-SENSITIVE  LIFE
PRODUCTS.   The  Company  primarily  accounts  for its annuity,  universal  and
interest-sensitive  life  policy  deposits  in  accordance  with  Statement  of
Financial  Accounting  Standards  No.  97  ("SFAS  No.  97"),  "Accounting  and
Reporting by Insurance Enterprises for Certain Long-Duration  Contracts and for
Realized  Gains and Losses on the Sale of Investments". Under SFAS  No.  97,  a
benefit reserve  is  established  at  the  time of policy issuance in an amount
equal to the deposits received. Thereafter, the benefit reserve is adjusted for
any additional deposits, interest credited and partial or complete withdrawals.
Revenues  for  annuities  and universal and interest-sensitive  life  policies,
other than certain non-interest  sensitive annuities, consist of policy charges
for  surrenders  and partial withdrawals,  mortality  and  administration,  and
investment income  earned.  Such revenues do not include the annuity, universal
and interest-sensitive life policy deposits. Expenses related to these products
include interest credited to  policyowner account balances, operating costs for
policy administration, amortization  of  DAC  and  mortality costs in excess of
account balances.

      Costs relating to the acquisition of new business,  primarily commissions
paid to agents, which vary with and are directly related to  the  production of
new  business, are deferred to the extent that such costs are recoverable  from
future  profit  margins.  At  the  time  of issuance, the acquisition expenses,
approximately 13% of initial annuity premium  deposits and 50% of premiums from
universal and interest-sensitive life products for SMC, are capitalized as DAC.
In accordance with SFAS No. 97, DAC with interest  is  amortized over the lives
of the policies in a constant relationship to the present  value  of  estimated
future gross profits.

      UNIT-LINKED  PRODUCT ACCOUNTING.  Separate account assets and liabilities
are  maintained primarily  for  contracts  of  which  the  majority  represents
unit-linked   products  where  benefits  on  surrender  and  maturity  are  not
guaranteed. They  generally  represent  funds held in accounts to meet specific
investment objectives of policyholders who bear the investment risk. Investment
income and investment gains and losses accrue  directly  to such policyholders.
SMC  earns  income  from  the  investment  management  fee it charges  on  such
unit-linked  contracts,  which  ranges from .8% to 1.2% of  the  value  of  the
underlying separate accounts.  In  addition,  on  certain  contracts,  SMC  can
potentially earn up to a 1.7% initiation fee on new business sold.

<PAGE>
RESULTS OF OPERATIONS BY SEGMENT FOR THE THREE YEARS ENDED DECEMBER 31, 1998:

The  following tables and narratives summarize the results of our operations by
business segment.

<TABLE>
<CAPTION>
                                                       1998                       1997                       1996
<S>                                                    <C>                        <C>                        <C>
                                                                                (Dollars in thousands)
Income before income taxes, and extraordinary charge:
   Domestic operations:
         Operating income                              $3,700                     $1,146                     $104
         Net realized investment gains                 353                        396                        1,302
         Gain on disposal of subsidiary                --                         --                         886
         Income before income taxes and extraordinary  4,053                      1,542                      2,292
             gain
   International operations:
         Operating income                              2,258                      1,720                      1,243
          Income before income taxes and extraordinary 2,258                      1,720                      1,243
             gain
   Consolidated:
         Operating income                              5,958                      2,866                      1,347
         Net investment gains                          353                        396                        1,302
         Gain on disposal of subsidiary                --                         --                         886
          Income before income taxes and extraordinary 6,311                      3,262                      3,535
             gain
Income tax expense (benefit)                           1,630                      617                        (730)
          Income before extraordinary gain             4,681                      2,645                      4,265
Extraordinary gain on early redemption of redeemable
preferred stock, net taxes of $0                       --                         --                         502
          Net income                                   $4,681                     $2,645                     $4,767
</TABLE>


CONSOLIDATED RESULTS AND ANALYSIS

      SMC's  1998 operating earnings were $4.4 million, or 58 cents per diluted
share, up 87% and 35%, respectively over 1997.  Operating earnings increased as
a result of i) increased spread revenues due to an increase in weighted average
insurance liabilities  (primarily  due  to  the  inclusion  of  Savers Life and
Midwestern Life operations), ii) favorable mortality experience, iii) fees from
administration  contracts  and iv) increased fees from separate accounts.   The
percentage increase in operating  earnings  was  greater  than  the  percentage
increase in operating earnings per diluted share primarily because of  the  67%
increase  in  weighted average diluted common shares or equivalents outstanding
during the period.   This  increase  in  weighted  average  shares  outstanding
resulted  primarily  from issued shares in connection with the acquisitions  of
Savers Life and Midwestern Life.

      SMC's 1997 operating  earnings were $2.4 million, or 43 cents per diluted
share, up 103% and 104%, respectively  over 1996.  Operating earnings increased
as a result of i) increased spread revenues  due  to  an  increase  in weighted
average  insurance  liabilities (primarily due to the inclusion of Shelby  Life
operations), ii) a nonproportional  increase  in operating expenses relative to
the  increase  in  weighted  average  insurance  liabilities,  iii)  fees  from
administration contracts, and iv) decreased premium deficiency reserves.
<PAGE>
DOMESTIC OPERATIONS:
<TABLE>
<CAPTION>
                                                       1998                       1997                       1996
<S>                                                    <C>                        <C>                        <C>
                                                                                (Dollars in thousands)
Premiums collected:
  Traditional life                                     $8,392                     $7,036                     $10,376
  Universal and interest-sensitive life                3,352                      4,302                      2,353
              Subtotal - life products                 11,744                     11,338                     12,729
    FPDA's                                             58,111                     42,251                     37,963
   Equity-indexed annuities                            16,858                     --                         --
   Other annuities and deposits                        3,537                      2,809                      2,064
              Subtotal - annuity products              78,506                     45,060                     40,027
    Medicare supplement premiums                       5,992                      --                         --
             Total premiums collected                  $96,242                    $56,398                    $52,756
   Life premiums                                       $8,392                     $7,036                     $10,376
   Health premiums                                     5,992                      --                         --
   Policy income                                       6,529                      5,512                      2,551
             Total policy related income               20,913                     12,548                     12,927
Net investment income                                  33,721                     28,614                     20,132
Other income                                           3,068                      1,093                      1,277
              Total revenues (a)                       57,702                     42,255                     34,336
Life benefits and claims                               8,487                      8,910                      10,247
Health benefits and claims                             4,823                      --                         --
Interest credited on interest sensitive annuities and
other financial products                               19,775                     16,281                     11,092
Amortization                                           4,755                      3,248                      2,592
Other operating expenses                               12,423                     10,289                     9,496
Health commissions                                     784                        --                         --
Interest expense and financing costs                   2,955                      2,381                      805
             Total benefits and expenses               54,002                     41,109                     34,232
             Operating income before income taxes and
                extraordinary gain                     3,700                      1,146                      104
Net realized investment gains                          353                        396                        1,302
Gain on disposal of subsidiary                         --                         --                         886
             Income before income taxes and            $4,053                     $1,542                     $2,292
                extraordinary gain
</TABLE>

(a) Revenues exclude net investment gains, and gain on disposal of subsidiary
<PAGE>
DOMESTIC OPERATIONS (CONTINUED):
<TABLE>
<CAPTION>
<S>                                         <C>                           <C>                           <C>
                                            1998                          1997                          1996
Number of annuity contracts in force        21,933                        14,013                        13,221
Interest-sensitive annuity and other
financial product reserves, net of          $506,749                      $350,607                      $333,633
    reinsurance ceded
Number of life policies in force            71,991                        68,571                        76,219
Life insurance in force, net of reinsurance $1,319,415                    $1,178,171{ (1)}              $1,367,675
    ceded
</TABLE>

(1)The  decrease  in  life insurance in force is due  to  the  termination  and
   recapture  of  a reinsurance  agreement  effective  January  1,  1997.   See
   "Business of SMC -- Reinsurance".


<PAGE>
GENERAL:

<circle>This segment  consists  of  revenues  earned and expenses incurred from
      United  States  operations  which includes deposits  and/or  income  from
      annuity products (primarily FPDA's),  equity  indexed products, universal
      life products and traditional life products.  The  profitability for this
      segment is primarily a function of its investment spread earned (i.e. the
      excess  of  investment  earnings over interest credited  on  annuity  and
      universal life deposits), persistency of the in force business, mortality
      experience and operating expenses.

PREMIUM INCOME:

<circle>Life premiums were up $1.4  million  or  19%  in 1998, to $8.4 million.
      Traditional life premiums of $1.1 million were earned  from  Savers  Life
      and  Midwestern  Life  in 1998.  The remaining increase of $.3 million is
      due to premiums from existing  blocks  of  traditional life business from
      Standard Life and Dixie Life.

<circle>Health premiums for 1998 include $6.0 million  of  Medicare  supplement
      premiums  that  were earned from March 12, 1998, the acquisition date  of
      Savers Life, through  July  1,  1998,  the  effective date of the sale of
      Medicare supplement block of business.

<circle>Life premiums decreased $3.3 million or 32%  in  1997, to $7.0 million.
      The decrease is attributable to the recapture of premiums  ceded  of $4.2
      million  due  to the termination and recapture of a reinsurance agreement
      with National Mutual  offset  by  an  increase  of premium income of $1.7
      million earned from the inclusion of Shelby Life.

NET PREMIUM DEPOSITS:

<circle>Net  premium  deposits  for 1998, received from the  sales  of  FPDA's,
      equity  indexed  annuities,  interest   sensitive   annuities  and  other
      financial products increased $32.5 million or 66%, to $81.9 million.  The
      increase  relates to i) an increase in the agency base  achieved  through
      the recruitment  of  high  volume  agents  and  larger  managing  general
      agencies, ii) continued expansion of geographical concentration, iii) the
      introduction  of  a new equity-indexed annuity product in May 1998, which
      contributed $16.9 million  of  deposits  for  the period and iv) deposits
      collected from Savers Life and Midwestern Life of $3.6 million.

<circle>Net  premium  deposits  for  1997 received from the  sales  of  FPDA's,
      interest sensitive annuities and  other financial products increased $7.0
      million  or  16%,  to $49.4 million.   The  increase  relates  to  i)  an
      aggressive marketing  campaign  targeting high volume marketing companies
      and ii) the continued development  of  SMC's  distribution system through
      the marketing support from Standard Marketing,  and  iii)  an increase in
      the agency base achieved by expanding geographical concentrations  in the
      Mid-south and California.

<circle>A change in premium deposits in a single period does not directly cause
      operating income to change, although continued increases or decreases  in
      premiums  may  affect the growth rate of total assets on which investment
      spreads are earned.

POLICY INCOME:

<circle>Policy income  represents  mortality  charges,  administrative fees and
      surrender charges.

<circle>During  1998  policy  income  increased $1.0 million  or  18%  to  $6.5
      million.  The increase relates to  $.8  million  of  surrender charges on
      certain FPDA products of Standard Life which is primarily  the  result of
      lowering credited rates on those products.

<circle>During  1997  policy  income  increased  $3.0  million  or 116% to $5.5
      million.   The  increase  in  policy income resulted from an increase  in
      mortality and administrative fees  of  $1.8 million from the inclusion of
      Shelby Life in operations for periods subsequent  to November 1, 1996 and
      an increase in policy surrender charges from FPDA's  of  $.7 million from
      Standard Life.

NET INVESTMENT INCOME:

<circle>Net  investment  income  fluctuates  with changes in i) the  amount  of
      average invested assets and ii) and the yield earned on invested assets.

<circle>During 1998 net investment income increased  $5.1  million  or  18%, to
      $33.7 million.  Average invested assets increased by $89.8 million or 23%
      due  to  the  growth  in  insurance  liabilities from the acquisitions of
      Savers  Life  and  Midwestern Life, which  contributed  $4.2  million  of
      investment income for  the  period.  Net investment income also increased
      due to the impact from the new equity indexed product of $.6 million.

<circle>During 1997 net investment  income  increased  $8.5  million or 42%, to
      $28.6 million.  Average invested assets increased by $99.0 million or 35%
      due to the growth in insurance liabilities of approximately  $100 million
      from the acquisition of Shelby Life and increased sales of FPDA's.

<circle>The  net investment yield earned on average invested assets was  7.48%,
      7.77% and 7.32% for 1998, 1997 and 1996, respectively.  Investment yields
      fluctuate  from  period to period primarily due to changes in the general
      interest rate environment.

OTHER INCOME:

<circle>Other income consists  of  fee  income  related  to servicing blocks of
      business for unaffiliated companies, experience refunds,  and  commission
      income.

<circle>Other income for 1998 increased $2.0 million or 181%, to $3.1  million.
      This  increase  primarily relates to $1.8 million of fee income from  the
      Savers Marketing Qual Choice administration agreement.

BENEFITS AND CLAIMS:

<circle>Life benefits and  claims  include i) paid life insurance, ii) benefits
      from annuity policies that incorporate  significant  mortality  features,
      and  iii)  changes  in  future policy reserves.  Throughout the Company's
      history, it has experienced  both  periods  of  higher  and lower benefit
      claims.   Such volatility is not uncommon in the life insurance  industry
      and, over extended  periods  of  time, periods of higher claim experience
      tend to offset periods of lower claims experience.

<circle>Health benefits and claims in 1998  include  $4.8  million  of Medicare
      supplement benefits incurred from March 12, 1998, the acquisition date of
      Savers Life through July 1, 1998, the effective date of the sale  of  the
      Medicare supplement block of business.

<circle>Life  benefits and claims in 1997 declined $1.3 million or 13%, to $8.9
      million due  to  i) an increase in future policy reserves of $4.2 million
      in 1996 related to  the  termination  and  recapture  of  the reinsurance
      agreement with National Mutual.  This decrease was somewhat  offset by an
      increase  in  benefits  and claims from adverse mortality experience  and
      $1.2 million of additional benefits from the inclusion of Shelby Life.

INTEREST CREDITED ON INTEREST SENSITIVE ANNUITIES AND OTHER FINANCIAL PRODUCTS:


<circle>During 1998, interest credited  on  interest  sensitive  annuities  and
      other  financial  products  increased  $3.5  million  or   21%,  to $19.8
      million  due  to  i)  interest  credited on the insurance liabilities  of
      Savers Life and Midwestern Life of  $2.4 million, ii) the impact from the
      new equity indexed product of $.6 million  and  iii) interest credited on
      the general growth of insurance liabilities from  increased  FPDA  sales.
      These  increases  were  somewhat  offset  by  a  decrease in the weighted
      average credited rate for the period.

<circle>During  1997  , interest credited on interest sensitive  annuities  and
      other financial products  increased $5.2 million or 47% to $16.3 million.
      The increase is related to  the  inclusion of interest credited on Shelby
      Life products of $3.7 million, increases  of  credited  interest  on  new
      annuity  sales,  the  increase in the growth of policy reserves from FPDA
      sales and an increase in the average credited interest rate.

<circle>The weighted average credited rate was 5.25%, 5.71% and 5.27 % in 1998,
      1997 and 1996 respectively.

AMORTIZATION:

<circle>Amortization includes  i)  amortization related to the present value of
      polices purchased from acquired  insurance  business  ii) amortization of
      deferred  acquisitions  costs related to capitalized costs  of  insurance
      business sold and iii) amortization of goodwill and organizational costs.

<circle>Amortization in 1998 increased  $1.5  million  or 46%, to $4.8 million.
      The  increase in amortization expense is primarily  related  to  deferred
      policy  acquisition  costs and is a result of emerging gross profits from
      business sold in recent  years,  increased surrenders and a corresponding
      increase  in the amortization of costs  related  to  purchased  insurance
      business.   Amortization  expense  of  $.5  million  related to purchased
      insurance business of Savers Life and Midwestern Life.

<circle>Amortization in 1997 increased $.7 million or 25%, to  $3.2 million and
      related to $.6 million of present value of future profit amortization  of
      Shelby Life.

<PAGE>
OTHER OPERATING EXPENSES:

<circle>Other   operating  expenses  consist  of  general  operating  expenses,
      including salaries, and commission expenses, net of deferrable amounts.

<circle>During 1998,  other  operating expenses increased $2.1 million or 21% ,
      to $12.4 million .  The  majority  of  this  increase  relates  to normal
      operating expenses from Savers Life and Midwestern Life.

<circle>During 1997, other operating expenses increased $.8 million or  8%,  to
      $10.3  million.  This increase relates to additional expenses as a result
      of the Shelby Life acquisition in late 1996.

HEALTH COMMISSIONS:

<circle>In 1998, commission expense included $.8 million of Medicare supplement
      insurance  commissions incurred from March 12, 1998, the acquisition date
      of Savers Life  through  July  1,  1998,  the  effective sale date of the
      Medicare supplement block of business.

INTEREST EXPENSE AND FINANCING COSTS:

<circle>Interest expense and financing costs for 1998  increased $.6 million or
      24%, to $3.0 million, due to increased average borrowings  for the period
      of $6.4 million primarily related to the acquisitions of Savers  Life and
      Midwestern  Life.   This  increase  was  offset  somewhat  by a decreased
      interest rate charged on the revolving line of credit.

<circle>Interest expense and financing costs for 1997 increased $1.6 million or
      196% to $2.4 million.  The increase resulted primarily from  i) increased
      borrowing  of  $10.0  million  in  November  1996 from the amended credit
      agreement, ii) borrowings of $4.0 million from  an unaffiliated insurance
      company  in  connection  with  the  acquisition  of  Shelby   Life,  iii)
      additional borrowings of $5.6 million in connection with funding  capital
      contributions to an insurance subsidiary and, iv) the redemption of Class
      S preferred stock.

NET REALIZED INVESTMENT GAINS:

<circle>Net realized investment gains fluctuate from period to period and arise
      when  securities  are  sold  in  response  to  changes  in the investment
      environment  which  provide  opportunities  to  maximize  return  on  the
      investment portfolio without adversely affecting the quality  and overall
      yield.

<circle>Net realized investment gains were $ .4 million for 1998 and 1997.


<PAGE>
INTERNATIONAL OPERATIONS:

<TABLE>
<CAPTION>
                                                       1998                       1997                       1996
<S>                                                    <C>                        <C>                        <C>
                                                                                (Dollars in thousands)
Premiums and deposits collected:
          Traditional life                             $95                        $64                        $92
         Separate account deposits                     42,536                     21,954                     16,902
               Total premiums and deposits collected   $42,631                    $22,018                    $16,994
Premium income                                         $95                        $64                        $92
Net investment income                                  859                        902                        739
Separate account fees                                  2,120                      1,521                      1,462
Amortization of negative goodwill                      1,388                      1,388                      1,388
Other income                                           353                        85                         --
                Total revenues                         4,815                      3,960                      3,681
Benefits and claims                                    (40)                       (70)                       (430)
Other operating expenses                               2,597                      2,310                      2,868
               Total benefits and expenses             2,557                      2,240                      2,438
               Income before income taxes and          $2,258                     $1,720                     $1,243
extraordinary gain
Separate account contracts{ (1)}                       3,070                      2,329                      2,484
Separate account liabilities{ (1)}                     $190,246                   $148,064                   $128,546
</TABLE>


(1)   primarily unit-linked products
<PAGE>
GENERAL:

<circle>International operations includes revenues earned and expenses incurred
      from  abroad,  primarily  Europe, and includes fees collected on deposits
      from unit-linked products.   The profitability for this segment primarily
      depends on the amount of separate  account  assets  under management, the
      management fee charged on those assets and expense management.

FEES FROM SEPARATE ACCOUNTS:

<circle>Fee income fluctuates in relationship to total separate  account assets
      and the fees earned on such assets.

<circle>During 1998, fees from separate accounts increased $.6 million  or 39%,
      to  $2.1  million.  This increase is due primarily to an increase in  the
      value of assets  held  in  separate accounts of $42.2 million or 29% , to
      $190.2 million.  Net deposits  from  sales of unit-linked products by SMI
      increased $20.6 million or 94%, to  $42.5  million.   This  increase is a
      continuation  of expanded marketing efforts that were initiated  in  1996
      and 1997.

<circle>During 1997,  fees  from separate accounts increased due to an increase
      in the value of assets held in separate accounts of $19.5 million or 15%,
      to $148.1 million.  Net  deposits  from the sales of unit-linked products
      by SMI increased $5.1 million or 30%, to $22 million.

NET INVESTMENT INCOME:

<circle>Net investment income was remained  unchanged  at  $.9 million for 1998
      and 1997 on average invested assets of approximately $11.0 million.

<circle>The  net  yield  was  7.74%, 7.57% and 6.81% for 1998, 1997  and  1996,
      respectively.

AMORTIZATION OF NEGATIVE GOODWILL:

<circle>The excess cost of assets acquired over the purchase price paid for SMI
      in December of 1993 of $6.9  million  has  been amortized over 5 years at
      $1.4 million per year and is fully amortized at December 31, 1998.

BENEFITS AND CLAIMS:

<circle>Benefits and claims include changes to future policyholder benefits and
      premium deficiency reserves.

<circle>During 1997, benefits and claims increased $.3 million partially due to
      increased traditional life reserves.

OTHER OPERATING EXPENSES:

<circle>Other operating expenses for 1998 increased $.3 million or 12%, to $2.6
      million.   The  increase  primarily  relates to  an  increased  level  of
      business  activity  for  the  period.  The  number  of  separate  account
      contracts administered increased 32%, to 3070.

<circle>Other operating expenses for  1997 declined $.6 million or 19%, to $2.3
      million.  The decrease primarily related to the a favorable impact of the
      US dollar relative to foreign currency.

FOREIGN CURRENCY TRANSLATION:

<circle>Although the net impact of foreign currency translation is deemed to be
      immaterial, comparisons between 1998,  1997  and 1996 are impacted by the
      strengthening and destrengthening of the U.S.  dollar relative to foreign
      currencies,  primarily  the  Luxembourg  franc.   The   impact  of  these
      translations have not been quantified on individual components.




<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY OF STANDARD MANAGEMENT (PARENT COMPANY)

      Standard  Management  is  a  financial  services  holding  company  whose
liquidity requirements are met through payments received from its subsidiaries.
These  payments  include i) interest on surplus debenture, ii) dividends,  iii)
management fees and  iv) rental income, which are subject to restrictions under
applicable insurance laws  and are used to pay operating expenses and meet debt
service  obligations.   These   internal   sources   of   liquidity  have  been
supplemented  in  the  past  by  external  sources  such as a revolving  credit
agreements and long term debt and equity financing in the capital markets.

      GENERAL:   On a consolidated GAAP basis SMC reported  net  cash  provided
by operations of $.3 million and $7.8 million for 1998 and 1997,  respectively.
Although  deposits received  on SMC's interest-sensitive  annuities  and  other
financial  products  are  not included in cash flow from operations under GAAP,
such funds are available for  use  by  SMC.  Cash  provided  by operations plus
net deposits received,  less  net account balances returned to policyholders on
interest sensitive annuities and other financial products, resulted in positive
cash  flow  of $29.2 million and $19.6 million for 1998 and 1997, respectively.
Cash generated on a consolidated basis is available to Standard Management only
to  the extent that it is generated  at  the  Standard Management  level  or is
available  through  dividends, interest, management fees or other payments from
subsidiaries.

      SMC instituted  a  program  to  repurchase  its  common stock in order to
increase  the  market  value  of  the  stock.  At December 31,  1998,  Standard
Management is authorized to repurchase 1.1  million  additional  shares  of SMC
Common Stock under this program.

      At February 28, 1999, Standard Management had "parent company only"  cash
and  short-term  investments  of  $.4  million.  These  funds  are available to
Standard  Management  for  general  corporate  purposes.  Standard Management's
"parent company only" operating expenses (not including interest  expense) were
$3.1  million  and $3.4 million for 1998 and 1997, respectively.  In  addition,
Standard  Management  has  available  $1.0  million  from  its  Amended  Credit
Agreement.

      In 1998, the Company issued convertible redeemable preferred stock with a
stated value of $6.5 million.  Proceeds were used to reduce the borrowings from
the Amended Credit Agreement.  Holders are entitled to receive annual dividends
of $7.75 per  share.   Refer  to  Notes  7 and 10 to the consolidated financial
statements for additional information.

      Standard Management anticipates the  available  cash  from  its  existing
working  capital,  plus  anticipated  1999  dividends,  management fees, rental
income and interest payments on its surplus debentures receivable  will be more
than  adequate  to meet its anticipated "parent company only" cash requirements
for 1999.

      INTEREST IN SURPLUS DEBENTURES AND NOTES PAYABLE:

      The following  are  characteristics  of  the  Amended Credit Agreement at
December 31, 1998:

<circle>$25.0 million outstanding balance

<circle>Weighted average interest rate of 8.52%

<circle>Principal  payments:   $3.3  million  due  March  2000,   $4.3  million
      thereafter through March 2005

<circle>Subject to certain restrictions and covenants

<circle>Interest payments required in 1999 based on December 31, 1998  balances
      will be $2.1 million

      The  following  are characteristics of the subordinated convertible  debt
agreement at December 31, 1998:

<circle>$10.0 million outstanding balance

<circle>Interest rate of 10% per annum

<circle>Due date of July 2004

<circle>Interest payments  required in 1999 based on December 31, 1998 balances
      will be $1.0 million

      Refer to Note 5 to the  consolidated  financial statements for additional
information

<PAGE>
      From the funds borrowed by Standard Management  pursuant  to  the Amended
Credit Agreement and the subordinated convertible debt agreement, $27.0 million
was loaned to Standard Life pursuant to Unsecured Surplus Debenture  Agreements
("Surplus  Debenture") which requires Standard Life to make quarterly  interest
payments to Standard Management at a variable corporate base rate  plus 2%  per
annum,  and annual  principal  payments of  $1.0  million per year beginning in
2007 and concluding in 2033. The interest and principal payments are subject to
quarterly  approval  by  the  Indiana  Department  of Insurance, depending upon
satisfaction of certain financial tests relating to  levels  of Standard Life's
capital  and  surplus  and  general approval of the Commissioner of the Indiana
Department  of Insurance.   Standard  Management  currently  anticipates  these
quarterly approvals will be granted. Assuming the approvals are granted and the
December  31, 1998  interest  rate of 9.75% continues, Standard Management will
receive  interest  income  of  $2.6 million from the Surplus Debenture in 1999.

      DIVIDENDS.   Dividends from Standard  Life  to  Standard  Management  are
limited by laws applicable  to  insurance  companies.   As an Indiana domiciled
insurance  company, Standard Life may pay a dividend or distribution  from  its
surplus profits,  without the prior approval of the Commissioner of the Indiana
Department of Insurance,  if  the  dividend  or distribution, together with all
other dividends and distributions paid within the preceding twelve months, does
not exceed the greater of (i) net gain from operations  or (ii) 10% of surplus,
in  each case as shown in its preceding annual statutory financial  statements.
In 1999,  Standard Life can pay dividends of approximately $4.4 million without
regulatory approval.

      MANAGEMENT  FEES.   Pursuant to a management services agreement, Standard
Life paid Standard Management  $2.0 million during 1998 and $2.0 million during
1997 for certain management services  related  to  the  production of business,
investment of assets and evaluation of acquisitions.  Prior  to its merger into
Standard Life, Savers Life paid Standard Management $.8 million during 1998 for
certain  management services pursuant to a management services  agreement.   In
addition,  Dixie  Life  paid  Standard  Life  $1.0 million during 1998 and $1.1
million during 1997 for certain management services  provided.   Both  of these
agreements  provide that they may be modified or terminated by the Indiana  and
Mississippi departments  of  insurance  in  the  event of financial hardship of
Standard Life or Dixie Life.

      Pursuant to the management services agreement,  Premier Life (Luxembourg)
paid  Standard  Management  $.1  million  during  1998  and  1997  for  certain
management and administrative services. The agreement provides  that  it may be
modified   or   terminated  by  either  Standard  Management  or  Premier  Life
(Luxembourg).

      EQUIPMENT RENTAL  FEES.   In  1998  and 1997, Standard Management charged
subsidiaries $1.1 million per year for the  use  of equipment owned by Standard
Management.

LIQUIDITY OF INSURANCE OPERATIONS

      U.S.  INSURANCE  OPERATIONS.   The  principal liquidity  requirements  of
Standard Life are its contractual obligations to policyholders, dividend, rent,
management fee and Surplus Debenture payments  to Standard Management and other
operating expenses. The primary source of funding  for  these  obligations  has
been cash flow from premium income, net investment income, investment sales and
maturities  and  sales  of  FPDAs. These sources of liquidity for Standard Life
significantly exceed scheduled  uses. Liquidity is also affected by unscheduled
benefit  payments  including  death   benefits   and   policy  withdrawals  and
surrenders. The amount of withdrawals and surrenders is  affected  by a variety
of  factors  such  as  renewal  interest  crediting  rates, interest rates  for
competing  products,  general economic conditions, Standard  Life's  A.M.  Best
ratings  (currently  rated  "B+")  and  events  in  the  industry  that  affect
policyholders' confidence.

      The policies and  annuities  issued  by  Standard Life contain provisions
that allow policyholders to withdraw or surrender  their policies under defined
circumstances. These policies and annuities generally  contain provisions which
apply penalties or otherwise restrict the ability of policyholders to make such
withdrawals  or surrenders. Standard Life closely monitors  the  surrender  and
policy loan activity  of  its insurance products and manages the composition of
its investment portfolios, including liquidity, in light of such activity.

      Changes in interest rates  may  affect the incidence of policy surrenders
and  other  withdrawals.  In addition to the  potential  effect  on  liquidity,
unanticipated  withdrawals  in  a  changing  interest  rate  environment  could
adversely affect earnings if  SMC  were required to sell investments at reduced
values  to  meet  liquidity  demands.  SMC  manages  the  asset  and  liability
portfolios in order to minimize the adverse  earnings effect of changing market
interest rates. SMC seeks assets that have duration  characteristics similar to
the liabilities that they support. SMC also prepares cash  flow projections and
performs cash flow tests under various market interest rate scenarios to assist
in  evaluating liquidity needs and adequacy. SMC's U.S. insurance  subsidiaries
currently  expect  available  liquidity  sources  and  future  cash flows to be
adequate to meet the demand for funds.

      Statutory surplus is computed according to rules prescribed  by the NAIC,
as modified by the Indiana Department of Insurance, or the state in  which  the
insurance  subsidiaries  do  business. Statutory accounting rules are different
from GAAP and are intended to  reflect  a  more  conservative perspective. With
respect  to  new  business,  statutory  accounting  practices   require   that:
(i)  acquisition  costs  (primarily  commissions  and  policy  issue costs) and
(ii) reserves for future guaranteed principal payments and interest  in  excess
of  statutory rates, be expensed in the year the new business is written. These
items  cause  a  reduction  in statutory surplus ("surplus strain") in the year
written for many insurance products.  SMC designs its products to minimize such
first-year losses, but certain products  continue  to cause a statutory loss in
the year written. For each product, SMC controls the amount of net new premiums
written  to manage the effect of such surplus strain.  SMC's  long-term  growth
goals contemplate  continued  growth  in  its  insurance businesses. To achieve
these growth goals, SMC's U.S. insurance subsidiaries  will  need  to  increase
statutory  surplus. Additional statutory surplus may be secured through various
sources such  as internally generated statutory earnings, infusions by Standard
Management with  funds  generated  through  debt or equity offerings or mergers
with other life insurance companies. If additional  capital  is  not  available
from  one  or  more of these sources, SMC believes that it could reduce surplus
strain through the  use  of  reinsurance  or  through  reduced  writing  of new
business.

      Management believes that the operational cash flow of Standard Life  will
be sufficient to meet its anticipated needs for 1999.  As of December 31, 1998,
Standard  Life  had  statutory  capital  and surplus for regulatory purposes of
$43.6 million compared to $25.9 million at  December  31, 1997. The increase is
primarily  due  to  the  issuance  of  $14.0 million of surplus  debentures  in
connection with the merger of Midwestern  Life  and  Savers  Life into Standard
Life.  The remaining increase is primarily due to 1998 net gain from operations
of  Standard Life of $1.7 million.  As the life insurance and annuity  business
produced  by  Standard  Life  increases,  Standard  Life expects to continue to
satisfy statutory capital and surplus requirements through  statutory  profits,
through the continued reinsurance of a portion of its new business, and through
additional  capital  contributions by Standard Management.  Net cash flow  from
operations on a statutory basis of Standard Life, after payment of benefits and
operating expenses, was  $15.8  million  and  $19.6  million for 1998 and 1997,
respectively.  If  the  need  arises for cash which is not  readily  available,
additional liquidity could be obtained from the sale of invested assets.

      Effective January 1, 1999  the  Company  decided  to  no  longer sell new
business  through  Dixie  Life.  All new business will instead be sold  through
Standard Life.  This decision  is  not  expected  to  have a material effect on
operations or financial condition of the Company.

      INTERNATIONAL OPERATIONS.  SMI dividends are limited  to  its accumulated
earnings  without  regulatory approval. SMI and Premier Life (Luxembourg)  were
not permitted to pay  dividends  in  1998  and  1997 due to accumulated losses.
Premier Life (Bermuda) did not pay dividends in 1998  and  1997.  SMC  does not
anticipate any dividends from these companies in 1999.

FACTORS THAT MAY AFFECT FUTURE RESULTS

      MERGERS, ACQUISITIONS AND CONSOLIDATIONS.  The U.S. insurance industry is
experiencing an increasing number of mergers, acquisitions, consolidations  and
sales  of  certain business lines.  These consolidations are largely the result
of the following:

      <circle>the need to reduce costs of distribution and overhead;
      <circle>the need to maintain business in force;
      <circle>increased competition;
      <circle>regulatory capital requirements; and
      <circle>technology costs.

SMC expects this trend to continue.

      FOREIGN CURRENCY RISK.  SMI policyholders invest in assets denominated in
a wide range  of  currencies.   As  policyholders  are  not permitted to invest
directly  in  options, futures and derivatives, their investment  and  currency
risk is limited to premiums they have paid.  Although policyholders effectively
bear the currency  risk,  SMI  could  be  exposed  to  currency fluctuations if
currencies within the conventional investment portfolio  or  certain  actuarial
reserves  are  mismatched.   In  order  to  minimize this risk, SMI continually
matches  the  assets and liabilities of the portfolio  and  the  reserves.   In
addition, Premier  Life  (Luxembourg)  shareholder's  equity  is denominated in
Luxembourg  francs.   Premier  Life  (Luxembourg) does not hedge currency  risk
because its shareholder's equity will  remain  in  Luxembourg  francs  for  the
foreseeable  future,  thus,  no  significant realized foreign exchange gains or
losses  are  anticipated.   At December  31,  1998,  there  was  an  immaterial
unrealized loss from foreign currency.

      EURO CURRENCY.  Effective  January  1,  1999,  the  eleven  participating
European  member  union  countries  established fixed conversion rates  between
their legal currencies and the euro.   The  legal currencies in those countries
will continue to be used as legal tender through  January  1, 2002.  Subsequent
to this date, the legal currencies will be canceled and euro  bills  and  coins
will be used for cash transactions in the participating countries.  During this
three  year  dual-currency  environment,  conversion  rates  between  the legal
currencies will no longer be computed directly between one another.  Instead, a
special  "triangulation"  procedure  must  be followed by first converting  one
legal currency into its euro equivalent and then converting the euro equivalent
into  the other legal currency.  Although the  Company  has  not  initiated  an
analysis  plan  for  the  euro  conversion,  SMC  does  not expect it to have a
material impact on its operations or financial condition.

      POSSIBILITY OF FUTURE DILUTION OF OWNERSHIP AND VOTING  POWER.   The  SMC
Board  of  Directors  has  the  authority  to issue up to .9 million additional
shares of preferred stock and 12.4 million additional  shares  of common stock.
The   board's   authority  under  SMC's  charter  typically  does  not  require
stockholder  approval   unless  it  is  otherwise  required  for  a  particular
transaction.  Although SMC  is  not  currently  involved  in any life insurance
acquisitions, the Company regularly investigates such opportunities  and  could
issue additional shares of SMC common or preferred stock in connection with  an
acquisition.

      UNCERTAINTIES  REGARDING  INTANGIBLE  ASSETS.  Included in SMC's December
31, 1998 financial statements are certain assets  that  are  primarily valued ,
for  financial  statement  purposes,  on the basis of  management  assumptions.
These assets include items such as:
      <circle>deferred acquisition costs;
      <circle>present value of future profits;
      <circle>costs in excess of net assets acquired; and
      <circle>organization and deferred debt issuance costs.

      The value of these assets reflected  in  the  December  31,  1998 balance
sheet  total  $67.6  million  or  7.1%  of  SMC's  assets.  SMC has established
procedures to periodically review the assumptions used  to  value  these assets
and determine the need to make adjustments of such values in SMC's consolidated
financial  statements.   SMC  has determined that the assumptions used  in  the
initial valuation of the assets  are  consistent with the current operations of
SMC as of December 31, 1998.

      REGULATORY ENVIRONMENT.  Currently,  prescribed  or  permitted  statutory
accounting  principles  ("SAP")  may vary between states and between companies.
The  NAIC is in the process of codifying  SAP  to  promote  standardization  of
methods  utilized  throughout  the  industry.  Completion of this project might
result  in  changes  in  statutory  accounting practices  for  SMC's  insurance
subsidiaries; however, it is not expected  that  such  changes would materially
affect SMC's insurance subsidiaries' statutory capital requirements.

      FINANCIAL SERVICES DEREGULATION.  The United States Congress is currently
considering a number of legislative proposals intended to  reduce  or eliminate
restrictions on affiliations among financial services organizations.  Proposals
are  extant  which  would  allow  banks  to  own or affiliate with insurers and
securities firms. An increased presence of banks  in  the  life  insurance  and
annuity  businesses  may  increase  competition  in  these markets. The Company
cannot predict the impact of these proposals on the earnings of the Company.

      IMPACT  OF  YEAR 2000.  The Company updated its main  operating  computer
systems in 1995 with  Year  2000 ready systems at a cost of $.5 million.  Since
that  time the Company has completed  modifications  or  conversions  of  other
portions  of  its  software,  hardware and imbedded chip technology so that its
computer systems will function  properly with respect to dates in the year 2000
and  thereafter.   The  Company  believes  that  with  such  modifications  and
conversions, the Year 2000 issue will not pose significant operational problems
for its computer systems.  The total  cost  of  the  Year  2000  project is $.6
million  including the $.5 million previously discussed.  These costs  are  not
material  to  the  Company's  financial  statements  and  were  funded  through
operating cash flows.

      The Company  is  currently  assessing  the  risks  associated  with their
external  business  relationships,  including  those  with agents and financial
institutions.   The  Company has been informed by approximately  50%  of  their
external  business partners  that  they are or will be Year 2000 ready sometime
in 1999.  The Company is still accumulating  data  from  the remaining business
partners, which it hopes to have concluded by mid 1999.

      The Company also assessed what contingency plans will  be needed, if any,
of  its critical systems or those of external business relationships  that  are
not Year  2000  ready  after December 31, 1999.  The Company does not currently
anticipate such a situation,  but  the consideration of a contingency plan will
continue to evolve as new information becomes available.

      The  failure  to  correct  a  Year   2000  problem  could  result  in  an
interruption,  or  failure  of,  a  number  of normal  business  activities  or
operations.  However, management has concluded  that  the  Year 2000 issue will
not  materially  affect  future financial results, or cause reported  financial
information  to be nonindicative  of  future  operating  results  or  financial
condition.

<PAGE>
ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company  seeks  to  invest  available  funds  in  a  manner that will
maximize  shareholder  value  and fund future obligations to policyholders  and
debtors, subject to appropriate  risk  considerations.   Many  of the Company's
products  incorporate  surrender  charges, market interest rate adjustments  or
other  features  to encourage persistency.   Approximately  75%  of  the  total
insurance liabilities  at  December  31,  1998 had surrender penalties or other
restrictions and approximately 9% are not subject to surrender.

      The Company also seeks to maximize the  total  return  on its investments
through active investment management.  Accordingly, the Company  has determined
that the entire portfolio of fixed maturity securities is available  to be sold
in response to: (i) changes in market interest rates; (ii) changes in  relative
values  of individual securities and asset sectors; (iii) changes in prepayment
risks; (iv)  changes  in  credit  quality  outlook  for certain securities; (v)
liquidity needs; and (vi) other factors.

      Profitability of many of the Company's products is significantly affected
by the spreads between interest yields on investments  and  rates  credited  on
insurance  liabilities.   Although  substantially all credited rates on annuity
products may be changed annually (subject to minimum guaranteed rates), changes
in  competition  and  other factors, including  the  impact  of  the  level  of
surrenders and withdrawals,  may  limit  the  ability  to adjust or to maintain
crediting rates at levels necessary to avoid narrowing of spreads under certain
market conditions.  As of December 31, 1998, the average yield, computed on the
cost  basis  of the investment portfolio, was 7.48%, and the  average  interest
rate credited  or  accruing to total insurance liabilities was 5.25%, excluding
interest bonuses guaranteed for the first year of the annuity contract only.

      Computer models  were  used  to  perform  simulations  of  the cash flows
generated  from  the  Company's  existing business under various interest  rate
scenarios.  These simulations measured the potential gain or loss in fair value
of interest rate-sensitive financial  instruments.   With  such  estimates, the
Company  seeks  to  closely  match  the  duration of assets to the duration  of
liabilities.   When  the estimated durations  of  assets  and  liabilities  are
similar, exposure to interest  rate  risk  is minimized because a change in the
value  of  assets  should  be  largely offset by  a  change  in  the  value  of
liabilities.  At December 31, 1998,  the  adjusted  modified  duration of fixed
maturity securities and short-term investments was approximately 5.6 years, and
the duration of insurance liabilities was approximately 4.1 years.

      If  interest rates were to increase by 10% from their December  31,  1998
levels, the Company's fixed maturity securities and short-term investments (net
of the corresponding  changes in the values of cost of policies purchased, cost
of policies produced and  insurance liabilities) would decline in fair value by
approximately $3.5 million.

      The  calculations  involved   in   the   Company's  computer  simulations
incorporate numerous assumptions, require significant  estimates  and assume an
immediate  change  in  interest  rates without any management of the investment
portfolio in reaction to such change.   Consequently,  potential changes in the
value of our financial instruments indicated by the simulations  will likely be
different  from  the  actual  changes  experienced  under  given interest  rate
scenarios,  and  the  differences  may  be  material.   Because  the  Company's
investments and liabilities are actively managed, actual losses could  be  less
than those estimated above.

ITEM 8.CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The financial statements and supplementary data required with respect  to
this  Item  8 are listed in Item 14(a)(1) and included in a separate section of
this report.

ITEM  9.CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
      FINANCIAL DISCLOSURE

      None.

                                      PART III

      The  Registrant  will  file  a  definitive  proxy  statement  pursuant to
Regulation  14A  of the Securities Exchange Act of 1934 in connection with  the
Company's 1999 Annual  Meeting  of  Shareholders,  (the  "Proxy Statement") not
later than 120 days after the end of the fiscal year covered  by  this  report,
and  certain  information included therein is incorporated herein by reference.
Only those sections  of  the  Proxy  Statements  which specifically address the
items set forth herein are incorporated by reference.   Such incorporation does
not include the Compensation Committee Report or the Performance Graph included
in the Proxy Statement.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The  information  concerning SMC's directors required  by  this  item  is
incorporated by reference to SMC's Proxy Statement.

      The information concerning SMC's executive officers required by this Item
is  incorporated by reference  herein  to  the  section  in  Part  I,  entitled
"Executive Officers."

      The  information  regarding  compliance with Section 16 of the Securities
and Exchange Act of 1934 is to be set  forth  in  the  Proxy  Statement  and is
hereby incorporated by reference.

ITEM 11.  EXECUTIVE COMPENSATION

      The  information  required  by  this Item is incorporated by reference to
SMC's Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information required by this  Item  is  incorporated  by reference to
SMC's Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS

      The  information  required  by this Item is incorporated by reference  to
SMC's Proxy Statement.


                                       PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) and (2)  The response to this  portion  of  Item  14  is  submitted as a
separate section of this report.

(a)(3)  List of Exhibits:


Exhibit
NUMBER         DESCRIPTION OF DOCUMENT

2.1      Amended  and  Restated  Agreement  and  Plan  of  Merger  dated as  of
         December  9,  1997  among  SMC, SAC and Savers Life. (incorporated  by
         reference to SMC's Registration  Statement  on  Form S-4 (Registration
         No. 333-43023)).

2.2      Stock Purchase Agreement dated as of June 4, 1998 by and among SMC and
         MC  Equities,  Inc.  (incorporated  by  reference  to  SMC's  Form 8-K
         (Registration No. 0-20882)).

2.3      First Amendment to Stock Purchase Agreement dated  as  of July 1, 1998
         by and among SMC and MC Equities,  Inc.  (incorporated by reference to
         SMC's Form 8-K (Registration No. 0-20882)).

2.4      Second Amendment to Stock Purchase Agreement dated as of July 23, 1998
         by and among SMC and MC Equities, Inc.  (incorporated  by reference to
         SMC's Form 8-K (Registration No. 0-20882)).

2.5      Third  Amendment  to Stock Purchase Agreement dated as of  October  8,
         1998 by and among SMC and MC Equities, Inc. (incorporated by reference
         to SMC's Form 8-K (Registration No. 0-20882)).

3.1      Amended  and  Restated   Articles   of   Incorporation,   as   amended
         (incorporated  by  reference to SMC's Annual Report on Form 10-K (File
         No. 0-20882) for the year ended December 31, 1996).

3.2      Amended  and Restated  Bylaws  of  SMC  as  amended  (incorporated  by
         reference  to  SMC's  Registration Statement on Form S-1 (Registration
         No. 33-53370) as filed  with the Commission on January 27, 1993 and to
         Exhibit 3 of SMC's Quarterly  Report  on  Form 10-Q (File No. 0-20882)
         for the quarter ended September 30, 1994).

4.1      Form of Senior Note Agreement Warrant (incorporated  by  reference  to
         SMC's Registration Statement on Form S-1 (Registration No. 33-53370)).

4.2      Form of Oppbridge Partners Warrant (incorporated by reference to SMC's
         Registration Statement on Form S-1 (Registration No. 33-53370)).

4.3      Registration  Rights  Agreement,  dated  as  of May 3, 1990 among SMC,
         Howard T. Cohn and Joseph J. Piazza and the first  amendment  thereto,
         dated  June  4,  1990 (incorporated by reference to SMC's Registration
         Statement on Form S-1 (Registration No. 33-53370).

4.4      Amended and Restated  Registration  Rights Agreement dated as of April
         15, 1997 by and between SMC and Fleet National Bank.

4.5      Form of Fleet National Bank Warrant.

Exhibit
NUMBER         DESCRIPTION OF DOCUMENT

4.6      Form of President's Club Warrant (incorporated  by  reference to SMC's
         Annual Report on Form 10-K (File No. 0-20882)).

4.7      Registration  Rights  Agreement dated as of November 8,  1996  by  and
         between SMC and Conseco  Variable  Insurance  Company  (formerly Great
         American  Reserve  Insurance  Company)  (incorporated by reference  to
         SMC's Quarterly Report on Form 10-Q (File No. 0-20882) for the quarter
         ended September 30, 1996).

4.8      Form  of  Sand  Brothers  &  Company,  Ltd. Warrant  (incorporated  by
         reference to SMC's Annual Report on Form  10-K  (File No. 0-20882) for
         the year ended December 31, 1997).

9        Voting Trust Agreement dated as of November 8, 1996  among  Delta Life
         and Annuity Company, Messrs. Ronald D. Hunter and Allen O. Jones, Jr.,
         as  Voting  Trustees,  and  SMC  (incorporated  by  reference to SMC's
         Registration Statement on Form S-4 (Registration No. 333-35447)).

10.1           Amended Advisory Agreement, dated as of August  1, 1991, between
               SMC and Conseco Capital Management, Inc., as amended,  April 17,
               1995  (incorporated  by  reference  to  SMC's  Annual  Report on
               Form  10-K  (File  No. 0-20882) for the year ended December  31,
               1996).

10.2           Second Amended and Restated  Employment  Contract by and between
               SMC  and  Ronald  D.  Hunter, dated and effective,  as  amended,
               April 3, 1995 (incorporated  by  reference  to  SMC's  Quarterly
               Report  on  Form  10-Q  (File No. 0-20882) for the quarter ended
               June 30, 1995).

10.3           Second Amended and Restated  Employment  Contract by and between
               SMC  and  Edward  T.  Stahl,  dated and effective,  as  amended,
               April  3, 1995 (incorporated by  reference  to  SMC's  Quarterly
               Report on  Form  10-Q  (File  No. 0-20882) for the quarter ended
               June 30, 1995).

10.4           Second Amended and Restated Employment  contract  by and between
               SMC  and  Raymond  J.  Ohlson, dated and effective, as  amended,
               April 3, 1995 (incorporated  by  reference  to  SMC's  Quarterly
               Report  on  Form  10-Q  (File No. 0-20882) for the quarter ended
               June 30, 1995).

10.5           First Amended and Restated  Employment  Contract  by and between
               SMC  and  Stephen  M. Coons dated and effective, April  3,  1995
               (incorporated  by  reference   to   SMC's  Quarterly  Report  on
               Form  10-Q (File No. 0-20882) for the  quarter  ended  June  30,
               1995).

10.6           Indemnification  Agreement  between SMC and Stephen M. Coons and
               Coons & Saint, dated August 1,  1991  (incorporated by reference
               to  SMC's  Registration  Statement  on  Form  S-1  (Registration
               No. 33-53370) as filed with the Commission on January 27, 1993).

10.7           Standard Management Corporation Amended and  Restated 1992 Stock
               Option   Plan  (incorporated  by  reference  to  the   Company's
               Registration  Statement on Form S-4 (Registration No. 333-35447)
               as filed with the Commission on September 11, 1997.

10.8           Lease by and between  Standard  Life  and  WRC Properties, Inc.,
               dated  February  27,  1991 (incorporated by reference  to  SMC's
               Registration Statement  on  Form S-1 (Registration No. 33-53370)
               as filed with the Commission on January 27, 1993).

10.9           Management Service Agreement between Standard Life and SMC dated
               August 1, 1992, as amended on  January  1,  1997  and as further
               amended on January 1, 1999.

10.10          Agreement   for  Assumption  Reinsurance  between  the  National
               Organization  Of Life and Health Insurance Guaranty Associations
               and  Standard  Life,  concerning,  The  Midwest  Life  Insurance
               Company In Liquidation  effective  June 1, 1992 (incorporated by
               reference   to  SMC's  Registration  Statement   on   Form   S-1
               (Registration  No.  33-53370)  as  filed  with the Commission on
               January 27, 1993).

10.11          Reinsurance Agreement between Standard Life  and  Swiss  Re Life
               and  Health effective May 1, 1975 (incorporated by reference  to
               SMC's   Registration   Statement   on   Form  S-1  (Registration
               No. 33-53370) as filed with the Commission on January 27, 1993).



Exhibit
NUMBER         DESCRIPTION OF DOCUMENT

10.12          Reinsurance Agreement between Firstmark Standard  Life Insurance
               Company and Swiss Re Life and Health effective February  1, 1984
               (incorporated  by  reference to SMC's Registration Statement  on
               Form  S-1  (Registration   No.   33-53370)  as  filed  with  the
               Commission on January 27, 1993).

10.13          Reinsurance Contract between First  International  and  Standard
               Life  dated  July  10,  1992 (incorporated by reference to SMC's
               Registration Statement on  Form  S-1 (Registration No. 33-53370)
               as filed with the Commission on January 27, 1993).

10.14          Amended  Reinsurance  Agreement  between   Standard   Life   and
               Winterthur  Life  Re Insurance Company effective January 1, 1995
               (incorporated by reference  to  SMC's Annual Report on Form 10-K
               (File No. 0-20882) for the year ended December 31, 1996).

10.15          Management Service Agreement between  Premier  Life (Luxembourg)
               and SMC dated September 30, 1994 (incorporated by  reference  to
               SMC's Annual Report on Form 10-K (File No. 0-20882) for the year
               ended December 31, 1994).

10.16          Assignment  of  Management  Contract  dated  October  2, 1995 of
               Management Contract dated January 1, 1987 between DNC and  Dixie
               Life to Standard Life (incorporated by reference to SMC's Annual
               Report  on  Form  10-K  (File  No.  0-20882)  for the year ended
               December 31, 1996).

10.17          Automatic   Indemnity   Reinsurance   Agreement  between   First
               International and The Guardian Insurance & Annuity Company, Inc.
               dated and effective January 1, 1996 (incorporated  by  reference
               to  SMC's Annual Report on Form 10-K (File No. 0-20882) for  the
               year ended December 31, 1996).

10.18          Indemnity    Retrocession   Agreement   between   The   Guardian
               Insurance & Annuity  Company,  Inc.  and Standard Life dated and
               effective January 1, 1996 (incorporated  by  reference  to SMC's
               Annual Report on Form 10-K (File No. 0-20882) for the year ended
               December 31, 1996).

10.19          Automatic  Indemnity  Reinsurance Agreement between The Guardian
               Insurance & Annuity Company,  Inc.  and  Standard Life dated and
               effective January 1, 1996 (incorporated by  reference  to  SMC's
               Annual Report on Form 10-K (File No. 0-20882) for the year ended
               December 31, 1996).

10.20          Administrative  Services  Agreement  between First International
               and   Standard  Life  dated  and  effective   March   18,   1996
               (incorporated  by  reference to SMC's Annual Report on Form 10-K
               (File No. 0-20882) for the year ended December 31, 1996).

10.21          Amendment No. 1 to Amended and Restated Revolving Line of Credit
               Agreement dated as of  March  10,  1998  between  SMC  and Fleet
               National Bank.  (Incorporated by reference  to  SMC's  Quarterly
               Report on Form 10-Q (File No. 0-20882)).

10.22          Amended  and Restated Note Agreement dated as of March 10,  1998
               between  SMC   and   Fleet   National  Bank  in  the  amount  of
               $20,000,000.(Incorporated by reference to SMC's Quarterly Report
               on Form 10-Q (File No. 0-20882)).

10.23          Amended and Restated Pledge Agreement dated as of March 10, 1998
               between SMC and Fleet National Bank.  (Incorporated by reference
               to SMC's Quarterly Report on Form 10-Q (File No. 0-20882)).

10.24          Revised Service Contract Agreement  dated as of October 16, 1995
               and effective January 1, 1995 between Standard Life and Standard
               Marketing (incorporated by reference  to  SMC's Annual Report on
               Form  10-K  (File No. 0-20882) for the year ended  December  31,
               1996).

10.25          Note Agreement  dated  as  of  November  8, 1996, as amended and
               restated  on  June  30, 1997,  by and between  SMC  and  Conseco
               Variable  Insurance  Company   in   the   amount  of  $4,371,573
               (incorporated  by  reference  to  SMC's  Quarterly   Report   on
               Form  10-Q  (File  No.  0-20882)  for the quarter ended June 30,
               1997).

10.26          Surplus Debenture dated as of November  8,  1996  by and between
               SMC and Standard Life in the amount of $13,000,000 (incorporated
               by  reference  to  SMC's  Quarterly  Report  on Form 10-Q  (File
               No. 0-20882) for the quarter ended September 30, 1996).

10.27          Portfolio Indemnify Reinsurance Agreement between Dixie Life and
               Cologne  Life  Reinsurance Company dated and effective  December
               31, 1997 (incorporated  by  reference  to SMC's Annual Report on
               Form  10-K (File No. 0-20882) for the year  ended  December  31,
               1996).

Exhibit
NUMBER         DESCRIPTION OF DOCUMENT

10.28          Note Agreement  dated  as  of June 30, 1997 between SMC, Conseco
               Health  Insurance  Company  (formerly   Capitol   American  Life
               Insurance  Company) and Conseco Senior Health Insurance  Company
               (formerly Transport  Life  Insurance  Company)  in the amount of
               $5,628,427 (incorporated by reference to SMC's Quarterly  Report
               on  Form 10-Q (File No. 0-20882) for the quarter ended June  30,
               1997).

10.29          Senior  Subordinated  Convertible Note dated as of June 30, 1997
               between SMC and Conseco  Health  Insurance Company in the amount
               of  $3,628,427  (incorporated by reference  to  SMC's  Quarterly
               Report on Form 10-Q  (File  No.  0-20882)  for the quarter ended
               June 30, 1997).

10.30          Senior Subordinated Convertible Note dated as  of  June 30, 1997
               between SMC and Conseco Senior Health Insurance Company  in  the
               amount   of  $2,000,000  (incorporated  by  reference  to  SMC's
               Quarterly Report on Form 10-Q (File No. 0-20882) for the quarter
               ended June 30, 1997).

10.31          Coinsurance  Agreement  effective  as  of  July  1,  1997 by and
               between Savers Life and World Insurance Company (incorporated by
               reference   to   SMC's   Registration   Statement  on  Form  S-4
               (Registration No. 333-35447)).

10.32          Amendment  I  to  the Guardian Indemnity Retrocession  Agreement
               effective as of January  1,  1996  by  and  between The Guardian
               Insurance and Annuity Company and Standard Life (incorporated by
               reference   to   SMC's  Registration  Statement  on   Form   S-4
               (Registration No. 333-35447)).

10.33          Promissory Note from  Ronald  D.  Hunter to SMC in the amount of
               $775,500 executed October 28, 1997 (incorporated by reference to
               SMC's Quarterly Report on Form 10-Q  (File  No. 0-20882) for the
               quarter ended September 30, 1997).

10.34          Reinsurance Agreement between Standard Life and Life Reassurance
               Corporation of America effective September 1, 1997.

10.35          Reinsurance Agreement between Standard Life and  Business  Men's
               Assurance Company of America effective September 1, 1997.

10.36          Management  Services Agreement between Savers Life and SMC dated
               March 11, 1998  (incorporated  by  reference  to SMC's Quarterly
               Report  on  Form 10-Q (File No. 0-20882) for the  quarter  ended
               June 30, 1998).

10.37          Indemnity Reinsurance  Agreement  between  Standard Life and the
               Mercantile and General Life Reassurance Company of America dated
               March  30,  1998  and  effective  June 1, 1997 (incorporated  by
               reference to SMC's Quarterly Report  on  Form  10-Q (File No. 0-
               20882) for the quarter ended June 30, 1998).

10.38          Certificate of Designations for Series A Convertible  Redeemable
               Preferred  Stock  (incorporated  by reference to SMC's Quarterly
               Report on Form 10-Q (File No. 0-20882)  for  the  quarter  ended
               June 30, 1998).

10.39          Quota  Share  Reinsurance  Agreement between Savers Life and the
               Oxford  Life Insurance Company  dated  September  24,  1998  and
               effective  July  1,  1998  (incorporated  by  reference to SMC's
               Quarterly Report on Form 10-Q (File No. 0-20882) for the quarter
               ended September 30, 1998).

10.40          Addendum  No. 5 to Reinsurance Agreement between  Standard  Life
               Insurance Company  of  Indiana  and Winterthur Life Re Insurance
               Company  dated August 20, 1998 and  effective  October  1,  1998
               (incorporated by reference to SMC's Quarterly Report on Form 10-
               Q (File No. 0-20882) for the quarter ended September 30, 1998).

10.41          Employment   Agreement  between  Robert  B.  Neal  and  Standard
               Management Corporation  dated  October  2,  1998  and  effective
               October  2,  1998  (incorporated by reference to SMC's Quarterly
               Report on Form 10-Q  (File  No.  0-20882)  for the quarter ended
               September 30, 1998).

10.42          Articles of Merger of Savers Life into Standard  Life  effective
               as  of  December 31, 1998 and approved by the Indiana Department
               of Insurance  December  29,  1998.

Exhibit
NUMBER         DESCRIPTION OF DOCUMENT

10.43          Plan and Agreement of Merger of Savers  Life  into Standard Life
               effective  as  of  December  31,  1998  dated October  30, 1998.

10.44          Articles  of  Merger  of  Midwestern  Life  into  Standard  Life
               effective  as  of  December 31, 1998 and approved by the Indiana
               Department  of Insurance  December  29,  1998.

10.45          Plan and Agreement  of  Merger  of Midwestern Life into Standard
               Life effective as of December 31,  1998  dated October 30, 1998.

10.46          Amended  and  Restated note Agreement dated as of September  24,
               1998 between SMC  and  Fleet  National  Bank  in  the  amount of
               $26,000,000.

10.47          Amendment No. 2 to Amended and Restated Revolving Line of Credit
               Agreement  dated as of September 24, 1998 between SMC and  Fleet
               National Bank.

10.48          Amended and  Restated  Registration Rights Agreement dated as of
               August 19, 1998 between SMC and Fleet National Bank.

10.49          Amended and Restated Pledge  Agreement dated as of September 23,
               1998, between SMC and Fleet National Bank.

10.50          Warrant to purchase common stock  of  SMC  dated August 19, 1998
               entitling Fleet National Bank to purchase 20,000 shares.

10.51          Guaranty  dated October 1, 1998 made by SMC in  favor  of  Fleet
               National Bank.

10.52          Surplus debenture  dated  as of December 31, 1998 by and between
               SMC and Standard Life in the amount of $8.0 million.

10.53          Surplus debenture dated as  of  December 31, 1998 by and between
               SMC and Standard Life in the amount of $6.0 million.

21       List of Subsidiaries of SMC

23.1           Consent of Ernst & Young LLP

23.2           Consent of KPMG Audit

24       Powers of Attorney

27       Financial Data Schedule, which is submitted electronically pursuant to
         Regulation  S-K  to  the  Securities  and  Exchange   Commission   for
         information only and not filed.


<PAGE>
   The  following is a list of each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report.

EXHIBIT
NUMBER

10.9
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53

(b)  Reports on Form 8-K filed during the fourth quarter of 1998.

   A report  on  Form  8-K was filed with the Commission to report under Item 5
the signing of the Third  Amendment to the Stock Purchase Agreement dated as of
October 8, 1998 to purchase Midwestern National Life Insurance Company of Ohio.

   A report on Form 8-K was  filed  with  the Commission to report under Item 2
the purchase of Midwestern National Life Insurance  Company of Ohio dated as of
November 13, 1998.




<PAGE>
                                     SIGNATURES

   Pursuant  to  the  requirements  of Section 13 or 15(d)  of  the  Securities
Exchange Act of 1934, the Registrant  has  duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

Date: March 30, 1999
                                       STANDARD MANAGEMENT CORPORATION

                                       /S/ RONALD D. HUNTER
                                       Ronald D. Hunter
                                       Chairman, President and
                                       Chief Executive Officer

   Pursuant to the requirements of the Securities  Exchange  Act  of 1934, this
report  has  been  signed  below on March 30, 1999 by the following persons  on
behalf of the Registrant and in the capacities indicated.

/S/ RONALD D. HUNTER
Ronald D. Hunter           Chairman, President and Chief Executive Officer
                           (Principal Executive Officer)

      *
Paul B. Pheffer            Director, Executive Vice President,
                           Treasurer and Chief Financial Officer
                           (Principal Financial Officer)

      *
Gerald R. Hochgesang       Senior Vice President -- Finance
                           (Principal Accounting Officer)

      *
Raymond J. Ohlson          Director

      *
Edward T. Stahl            Director

      *
Stephen M. Coons           Director

      *
Martial R. Knieser         Director

      *
Robert A. Borns            Director

      *
John J. Dillon             Director

      *
Jerry E. Francis           Director

*By:   /s/     RONALD D. HUNTER
               Ronald D. Hunter
               Attorney-in-Fact
<PAGE>


                          ANNUAL REPORT ON FORM 10-K

                  ITEM 8, ITEM 14(a)(1) AND (2),(c) AND (d)

                 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         LIST OF FINANCIAL STATEMENTS

                                     and

                        FINANCIAL STATEMENT SCHEDULES

                               CERTAIN EXHIBITS

                        FINANCIAL STATEMENT SCHEDULES

                         Year Ended December 31, 1998

                       STANDARD MANAGEMENT CORPORATION

                            INDIANAPOLIS, INDIANA









<PAGE>
               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

              INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
                       AND FINANCIAL STATEMENT SCHEDULES

PAGE

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Auditors                                              F-2

Consolidated Balance Sheets as of December 31, 1998 and 1997                F-4

Consolidated Statements of Income for the Years Ended
   December 31, 1998, 1997 and 1996                                         F-5

Consolidated Statements of Shareholders' Equity for the Years Ended
   December 31, 1998, 1997 and 1996                                         F-6

Consolidated Statements of Cash Flows for the Years Ended
   December 31, 1998, 1997 and 1996                                         F-8

Notes to Consolidated Financial Statements                                  F-9

FINANCIAL STATEMENT SCHEDULES

The following consolidated  financial  statement schedules are included in this
report and should be read in conjunction with the Audited Consolidated 
Financial Statements.

Schedule II -- Condensed Financial Information of Registrant
   (Parent Company) for the Years Ended December 31, 1998, 1997 and 1996    F-32

Schedule IV -- Reinsurance for the Years Ended 
   December 31, 1998, 1997 and 1996                                         F-36

Schedules not listed above have been omitted because they are not applicable or
are not required,  or  because  the  required  information  is  included in the
Audited Consolidated Financial Statements or related Notes.






<PAGE>

                           REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
Standard Management Corporation

   We  have  audited  the accompanying consolidated balance sheets of  Standard
Management Corporation  and  subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements  of  income,  shareholders' equity and cash
flows for each of the three years in the period ended  December  31,  1998. Our
audits  also included the financial statement schedules listed in the Index  at
Item 14(a).  These financial statements and schedules are the responsibility of
the Company's  management. Our responsibility is to express an opinion on these
financial statements  and  schedules  based on our audits. We did not audit the
consolidated balance sheets at September  30, 1998 and 1997 or the consolidated
statements of operations, shareholder's equity  and  cash  flows  for the three
years  ended September 30, 1998 of Standard Management International  S.A.  and
subsidiaries,  a  wholly  owned  subsidiary  group,  which financial statements
reflect assets totaling approximately 22% and 24% of the Company's consolidated
assets at December 31, 1998 and 1997 and revenues totaling approximately 8%, 8%
and 9% of consolidated revenues for each of the three years in the period ended
December 31, 1998. Those financial statements, which as  explained  in  Note 1,
are included in the Company's consolidated balance sheets at December 31,  1998
and  1997,  and  the Company's consolidated statements of income, shareholders'
equity and cash flows  for each of the three years in the period ended December
31, 1998, were audited by other auditors whose report has been furnished to us,
and our opinion, insofar  as  it  relates  to  the  data  included for Standard
Management International S.A., is based solely on the report of other auditors.

   We  conducted  our  audits  in  accordance with generally accepted  auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable  assurance  about  whether the  financial  statements  are  free  of
material misstatement. An audit  includes  examining, on a test basis, evidence
supporting the amounts and disclosures in the  financial  statements.  An audit
also   includes  assessing  the  accounting  principles  used  and  significant
estimates  made  by  management,  as  well  as evaluating the overall financial
statement presentation. We believe that our audits  and  the  report  of  other
auditors provide a reasonable basis for our opinion.

   In  our  opinion,  based on our audits and the report of other auditors, the
financial  statements  referred  to  above  present  fairly,  in  all  material
respects,  the  consolidated   financial   position   of   Standard  Management
Corporation  and  subsidiaries  at  December  31,  1998  and  1997,   and   the
consolidated  results  of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.  Also,  in  our  opinion, the related financial
statement  schedules,  when  considered  in  relation to  the  basic  financial
statements  taken  as  a whole, present fairly in  all  material  respects  the
information set forth therein.


                                       Ernst & Young LLP




Indianapolis, Indiana
February 18, 1999



<PAGE>

                           REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
Standard Management International, S.A.

   We  have audited the consolidated  balance  sheets  of  Standard  Management
International  S.A.  and subsidiaries as at September 30, 1998 and 1997 and the
related consolidated statements  of  operations,  shareholder's equity and cash
flows for each of the three years in the period ended  September 30, 1998 (none
of which aforementioned financial statements are separately  presented herein).
These consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

   We conducted  our  audits  in  accordance  with  generally accepted auditing
standards in the United States of America. Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable assurance  about  whether  the
financial  statements  are free of material  misstatement.  An  audit  includes
examining, on a test basis,  evidence supporting accounting principles used and
significant estimates made by  management,  as  well  as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

   In our opinion the financial statements referred to above present fairly, in
all   material   aspects,  the  consolidated  financial  position  of  Standard
Management International  S.A.  and  subsidiaries  as at September 30, 1998 and
1997, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September  30,  1998  in conformity
with generally accepted accounting principles in the United States of America.



Luxembourg City, Luxembourg



February 18, 1999
KPMG Audit



<PAGE>
                     STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

                                CONSOLIDATED BALANCE SHEETS
                     (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                             December 31
<S>                                                                           <C>                              <C>
                                                                                1998                             1997
                              ASSETS
Investments:
  Securities available for sale:
       Fixed maturity securities, at fair value (amortized cost: 1998 -       $551,312                         $372,576
         $547,115; 1997 - $367,372)
      Equity securities, at fair value (cost: 1998 - $1,498; 1997 - $55)      1,316                            52
  Mortgage loans on real estate                                               8,578                            375
  Policy loans                                                                15,019                           9,495
  Real estate                                                                 3,435                            2,163
  Other invested assets                                                       837                              779
  Short-term investments                                                      11,626                           13,342
        Total investments                                                     592,123                          398,782
Cash                                                                          13,591                           4,165
Accrued investment income                                                     9,563                            6,512
Amounts due and recoverable from reinsurers                                   76,897                           61,596
Deferred policy acquisition costs                                             32,946                           21,435
Present value of future profits                                               28,793                           20,537
Excess of acquisition cost over net assets acquired                           5,886                            2,445
Federal income tax recoverable                                                1,059                            1,854
Other assets                                                                  5,046                            3,602
Assets held in separate accounts                                              190,246                          148,064
        Total assets                                                          $956,150                         $668,992
               LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Insurance policy liabilities                                                $638,435                         $439,390
  Accounts payable and accrued expenses                                       12,277                           6,349
  Notes payable                                                               35,000                           26,000
  Deferred federal income taxes                                               7,620                            4,488
  Excess of net assets acquired over acquisition cost                         --                               1,388
  Liabilities related to separate accounts                                    190,246                          148,064
        Total liabilities                                                     883,578                          625,679

Series A convertible redeemable preferred stock, par value $100 per share:
  authorized 130,000 shares; 65,300 shares issued and outstanding in 1998     6,530                            --

Shareholders' Equity:
  Preferred stock, no par value:
      authorized 870,000 shares; none issued and outstanding                  --                               --
  Common stock, no par value:
      authorized 20,000,000 shares; outstanding 1998-7,641,454; 1997-         60,586                           40,646
        4,876,490
  Treasury stock                                                              (6,220)                          (4,572)
     Accumulated other comprehensive income:
      Unrealized gain on securities available for sale (net taxes of: 1998 -  1,660                            2,171
        $765; 1997 - $1,094)
      Unrealized gain on other investments (net taxes of: 1998 - $12)         23                               --
      Foreign currency translation adjustment (net taxes (benefits) of: 1998  4                                (473)
        - $2; 1997 - $(244))
  Retained earnings                                                           9,989                            5,541
        Total shareholders' equity                                            66,042                           43,313
        Total liabilities and shareholders' equity                            $956,150                         $668,992
</TABLE>

               See accompanying notes to consolidated financial statements.

<PAGE>
               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31
<S>                                                          <C>                        <C>                        <C>
                                                             1998                       1997                       1996
Revenues:
   Life premiums                                             $8,487                     $7,100                     $10,468
  Health premiums                                            5,992                      --                         --
  Net investment income                                      34,580                     29,516                     20,871
  Net realized investment gains                              353                        396                        1,302
  Gain on disposal of subsidiaries                           --                         --                         886
  Policy income                                              6,529                      5,512                      2,551
  Amortization of excess of net assets acquired over         1,388                      1,388                      1,388
  acquisition cost
  Fees from separate accounts                                2,120                      1,521                      1,462
  Other income                                               3,421                      1,178                      1,277
        Total revenues                                       62,870                     46,611                     40,205
Benefits and expenses:
  Life benefits and claims                                   8,447                      8,840                      9,817
  Health benefits and claims                                 4,823                      --                         --
  Interest credited on interest-sensitive annuities and
  other                                                      19,775                     16,281                     11,092
      financial products
  Amortization                                               4,755                      3,248                      2,592
  Other operating expenses                                   15,020                     12,599                     12,364
  Health commissions                                         784                        --                         --
  Interest expense and financing costs                       2,955                      2,381                      805
        Total benefits and expenses                          56,559                     43,349                     36,670
Income before federal income taxes, extraordinary gain and
preferred stock                                              6,311                      3,262                      3,535
  dividends
Federal income tax expense (benefit)                         1,630                      617                        (730)
Income before extraordinary gain and preferred stock         4,681                      2,645                      4,265
dividends
Extraordinary gain on early redemption of redeemable
preferred stock,                                             --                         --                         502
  net taxes of $0
Net income                                                   4,681                      2,645                      4,767
Preferred stock dividends                                    180                        97                         208
Earnings available to common shareholders                    $4,501                     $2,548                     $4,559
Earnings per common share:
  Income before extraordinary gain and preferred stock       $.68                       $.54                       $.88
    dividends
  Extraordinary gain                                         --                         --                         .10
  Net income                                                 .68                        .54                        .98
  Preferred stock dividends                                  .03                        .02                        .04
  Earnings available to common shareholders                  $.65                       $.52                       $.94
Earnings per common share - assuming dilutions:
  Income before extraordinary gain and preferred stock       $.62                       $.48                       $.82
  dividends
  Extraordinary gain                                         --                         --                         .09
  Net income                                                 .62                        .48                        .91
  Preferred stock dividends                                  .02                        .01                        .04
  Earnings available to common shareholders - assuming       $.60                       $.47                       $.87
  dilutions
</TABLE>

               See accompanying notes to consolidated financial statements.

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                            (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                                                                         Other
                                                                   Common          Treasury          Comprehensive        Retained
                                             Total                  Stock            Stock              Income            Earnings
<S>                                          <C>                 <C>                <C>              <C>                 <C>
Balance at January 1, 1996                   $40,242             $39,808            $(2,621)         $      3,741        $(686)
Comprehensive income, net of tax:
  Net income                                 4,767                                                                       4,767
  Other comprehensive income:
         Change in unrealized gain (loss) of
         securities                          (3,328)                                                (3,328)
           (net taxes (benefits) of
           $(1,714))
         Change in foreign currency (net
         taxes(benefits)                     (468)                                                  (468)
           of $(241))
           Other comprehensive income        (3,796)
           Total comprehensive income        971
Issuance of common stock                     100                 100
Common stock dividends                       850                 850
Issuance of common stock warrants            285                 285
Repurchase of common stock warrants          (600)               (600)
Gain on reissuance of treasury stock
     in connection with purchase of Shelby   38                  38
Life
Treasury stock acquired                      (2,126)                              (2,126)
Reissuance of treasury stock in connection
with                                         6                                    6
   exercise of stock options
Reissuance of treasury stock in connection
with                                         1,213                                1,213
   purchase of Shelby Life
Common stock dividend, plus cash in lieu
   of fractional shares                      (850)                                                                       (850)
Loss on reissuance of treasury stock         (2)                                                                         (2)
Preferred stock dividends                    (208)                                                                       (208)
Balance at December 31, 1996                 39,919              40,481           (3,528)           (55)                 3,021

Comprehensive income, net of tax:
   Net income                                2,645                                                                       2,645
   Other comprehensive income:
         Change in unrealized gain (loss) of
         securities                          2,917                                                  2,917
           (net taxes of $1,503)
         Change in foreign currency (net
         taxes (benefits) OF $(600))         (1,164)                                                (1,164)
           Other comprehensive income        1,753
           Total comprehensive income        4,398
Issuance of common stock warrants            165                 165
Treasury stock acquired                      (1,079)                             (1,079)
Reissuance of treasury stock in connection
with exercise of stock options               35                                  35
Loss on reissuance of treasury stock         (28)                                                                        (28)
Preferred stock dividends                    (97)                                                                        (97)
Balance at December 31, 1997                 43,313              40,646          (4,572)            1,698                5,541
</TABLE>


                               (continued on following page)

               See accompanying notes to consolidated financial statements.

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
                            (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                                                                         Other
                                                                  Common Stock       Treasury        Comprehensive        Retained
                                              Total                                    Stock            Income            Earnings
<S>                                           <C>          <C>                <C>             <C>                 <C> 
Balance at December 31, 1997 (carried forward
from prior page)                              43,313       40,646             (4,572)         1,698               5,541
Comprehensive income, net of tax:
   Net income                                 4,681                                                               4,681
   Other comprehensive income:
     Change in unrealized gain (loss) of
     securities                               (488)                                           (488)
          (net taxes (benefits) of $(251))
     Change in foreign currency (net taxes of 477                                             477
     $246)
     Other comprehensive income               (11)
     Total comprehensive income               4,670
Issuance of common stock for Savers Life      15,024       15,024
  acquisition
Issuance of common stock for Midwestern Life
   acquisition                                4,614        4,614
Issuance of common stock warrants             64           64
Issuance of common stock in connection with
   exercise of stock warrants                 233          234                                                    (1)
Treasury stock acquired                       (1,702)                         (1,702)
Conversion of preferred stock into common     4            4
   stock
Reissuance of treasury stock in connection
   with exercise of stock options             2                               54                                  (52)
   exercise of stock options
Preferred stock dividends                     (180)                                                               (180)
Balance at December 31, 1998                  $66,042      $60,586            $(6,220)        $1,687              $9,989
</TABLE>



               See accompanying notes to consolidated financial statements.














<PAGE>
               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                      Year Ended December 31
<S>                                                                  <C>                        <C>                       <C> 
                                                                         1998                      1997                      1996
OPERATING ACTIVITIES
Net income                                                             $4,681                    $2,645                    $4,767
Adjustments to reconcile net income to net cash provided by
operating activities:
  Amortization of deferred policy acquisition costs                     2,658                     1,456                     1,221
  Policy acquisition costs deferred                                  (13,542)                   (7,005)                   (6,400)
  Deferred federal income taxes                                           957                     1,187                       158
  Depreciation and amortization                                         1,209                     1,085                       544
  Insurance policy liabilities                                          6,400                     9,441                     4,785
  Net realized investment gains                                         (353)                     (396)                   (1,302)
  Accrued investment income                                           (1,451)                     (314)                     (770)
  Extraordinary gain on early redemption of redeemable                     --                        --                     (502)
preferred stock
   Other                                                                (290)                     (335)                     (775)
          Net cash provided by operating activities                       269                     7,764                     1,726
FINANCING ACTIVITIES
Issuance of common stock, net                                          19,638                        --                        --
Borrowings, net of debt issuance costs of $206, $70 and $208
in 1998, 1997                                                          11,794                     5,558                    16,792
  and 1996, respectively
Repayments on long-term debt and obligations under capital            (3,141)                     (543)                     (491)
lease
Premiums received on interest-sensitive annuities and other
financial products credited                                            81,858                    49,362                    42,347
  to policyholder account balances, net of premiums ceded
Return of policyholder account balances on interest-sensitive
annuities and other financial products, net of premiums ceded        (52,934)                  (37,477)                  (17,356)
Issuance of Series A redeemable preferred stock                         6,389                        --                        --
Redemption of preferred stock                                              --                   (1,855)                     (949)
Repurchase of common stock warrants                                        --                        --                     (600)
Proceeds from common and treasury stock sales                             234                       138                       100
Purchase of common stock for treasury                                 (1,647)                   (1,079)                   (2,126)
         Net cash provided by financing activities                     62,191                    14,104                    37,717
INVESTING ACTIVITIES
Fixed maturity securities available for sale:
   Purchases                                                        (261,744)                 (205,976)                 (249,638)
  Sales                                                               162,503                   161,891                   194,244
  Maturities, calls and redemptions                                    32,570                    28,380                    10,254
Short-term investments, net                                            44,460                   (4,925)                    11,890
Other investments, net                                                    320                   (2,186)                     (551)
Purchase of Savers Life Insurance Company, less cash acquired        (18,039)                        --                        --
of $518
Purchase of Midwestern National Life Insurance Company of
Ohio, less cash                                                      (13,104)                        --                        --
  acquired of $1,026
Purchase of Shelby Life Insurance Company, less cash acquired              --                        --                  (14,618)
of $32
Dividends paid by Shelby Life Insurance Company to former                  --                        --                   (3,000)
parent
Proceeds from sale of First International Life Insurance
Company, less cash transferred                                             --                        --                    11,327
  to seller of $265
         Net cash used by investing activities                       (53,034)                  (22,816)                  (40,092)
Net increase (decrease) in cash                                         9,426                     (948)                     (649)
Cash at beginning of year                                               4,165                     5,113                     5,762
Cash at end of year                                                   $13,591                    $4,165                    $5,113
</TABLE>

     See accompanying notes to consolidated financial statements.
<PAGE>

                       STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1998


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

   Standard Management Corporation  ("Standard Management") is an international
financial services holding company, which directly and through its subsidiaries
i)  acquires and manages in force life  insurance  and  annuity  business,  ii)
issues  and  distributes  life  insurance and annuity products, and iii) offers
unit-linked assurance products through its international subsidiaries.

   Standard Management's active subsidiaries  at  December  31,  1998  include:
(i)  Standard  Life  Insurance  Company  of  Indiana  ("Standard Life") and its
subsidiary, Dixie National Life Insurance Company ("Dixie Life"), (ii) Standard
Management  International,  S.A.  and  its subsidiaries ("SMI"),  Premier  Life
(Luxembourg) S.A. ("Premier Life (Luxembourg)") and Premier Life (Bermuda) Ltd.
("Premier  Life (Bermuda)"), (iii) Standard  Marketing  Corporation  ("Standard
Marketing") and (iv) Savers Marketing Corporation ("Savers Marketing").

BASIS OF PRESENTATION

   The accompanying  consolidated  financial  statements of Standard Management
and its subsidiaries (the "Company" or "SMC") have  been prepared in conformity
with generally accepted accounting principles ("GAAP") and include the accounts
of the Company since acquisition or organization.  All significant intercompany
balances and transactions have been eliminated.

   The fiscal year end for SMI is September 30. To facilitate  reporting on the
consolidated  level,  the  fiscal  year  end  for SMI was not changed  and  the
consolidated  balance  sheets  and  statements  of  operations   for   SMI   at
September 30, 1998 and 1997 and for each of the three years in the period ended
September  30,  1998, are included in the Company's consolidated balance sheets
at December 31, 1998  and  1997  and  for each of the three years in the period
ended December 31, 1998.

USE OF ESTIMATES

   The nature of the Company's insurance businesses requires management to make
estimates and assumptions that affect the  amounts reported in the consolidated
financial statements and accompanying notes.  Such  estimates  and  assumptions
could  change  in  the  future  as  more information becomes known, which could
impact the amounts disclosed in this report.

INVESTMENTS

   The Company classifies its fixed maturity and equity securities as available
for sale and, accordingly, such securities  are  carried  at  fair value. Fixed
maturity securities include bonds and redeemable preferred stocks.  Changes  in
fair  values  of  securities  available for sale, after adjustment for deferred
policy acquisition costs, present  value  of future profits and deferred income
taxes, are reported as unrealized gains or  losses  directly  in  shareholders'
equity  and,  accordingly,  have  no effect on net income. The deferred  policy
acquisition  costs and present value  of  future  profits  adjustments  to  the
unrealized gains or losses represent valuation adjustments or reinstatements of
these assets that  would have been required as a charge or credit to operations
had such unrealized amounts been realized.

   The cost of fixed  maturity  securities  is  adjusted  for  amortization  of
premiums  and  discounts.  The amortization is provided on a constant effective
yield method over the life of  the securities and is included in net investment
income.

   Mortgage-backed and other collateralized  securities,  classified  as  fixed
maturity   securities   in  the  consolidated  balance  sheets,  are  comprised
principally of obligations  backed by an agency of the United States government
(although generally not by the  full  faith  and  credit  of  the United States
government).  The Company has reduced the risk normally associated  with  these
investments by primarily investing in highly rated securities and in those that
provide more predictable  prepayment patterns. The income from these securities
is recognized using a constant effective yield based on anticipated prepayments
and the estimated economic  life  of  the  securities.  When actual prepayments
differ  significantly  from anticipated prepayments, the income  recognized  is
adjusted currently to match  that  which  would  have  been  recorded  had  the
effective  yield  been  applied  since  the  acquisition  of the security. This
adjustment is included in net investment income.

<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


   Mortgage  loans  on  real  estate  and  policy loans are carried  at  unpaid
principal balances and are generally collateralized.  Real  estate investments,
which  the  Company  has the intent to hold for the production of  income,  are
carried at cost, less  accumulated  depreciation.  Short-term  investments  are
carried at amortized cost, which approximates fair value.

NET REALIZED INVESTMENT GAINS OR LOSSES

   Net  realized  investment gains and losses are calculated using the specific
identification method  and  included  in the consolidated statements of income.
If  the  values of investments decline below  their  amortized  cost  and  this
decline is  considered  to be other than temporary, the amortized cost of these
investments is reduced to net realizable value and the reduction is recorded as
a realized loss.

FUTURE POLICY BENEFITS

   Liabilities for future  policy benefits for deferred annuities and universal
life policies are equal to full  account value that accrues to the policyholder
(cumulative premiums less certain  charges,  plus interest credited) with rates
ranging from 4.8% to 11% in 1998 and 4.5% to 12% in 1997.

   Future policy benefits for traditional life insurance contracts are computed
using the net level premium method on the basis  of  assumed investment yields,
mortality and withdrawals which were appropriate at the  time the policies were
issued. Assumed investment yields are based on interest rates ranging from 6.5%
to  7.5%.  Mortality  is based upon various actuarial tables,  principally  the
1965-1970  Select  and Ultimate  Table.  Withdrawals  are  based  upon  Company
experience and vary by issue age, type of coverage, and duration.

RECOGNITION OF INSURANCE POLICY REVENUE AND RELATED BENEFITS AND EXPENSES

   Revenue for interest-sensitive  annuity contracts consists of policy charges
for  surrenders  and investment income  earned.  Premiums  received  for  these
annuity contracts  are  reflected  as  premium deposits and are not recorded as
revenues.  Expenses related to these annuities  include  interest  credited  to
policyholder  account  balances.  Revenue for universal life insurance policies
consists of policy charges for the  cost  of  insurance,  policy administration
charges,  surrender  charges  and investment income earned during  the  period.
Expenses  related  to universal life  policies  include  interest  credited  to
policyholder  account  balances  and  death  benefits  incurred  in  excess  of
policyholder account balances.

   Traditional  life insurance and immediate annuity premiums are recognized as
premium revenue when  due  over  the  premium  paying  period  of the policies.
Benefits are charged to expense in the period when claims are incurred  and are
associated  with related premiums through changes in reserves for future policy
benefits which  results  in  the  recognition of profit over the premium paying
period of the policies.

REINSURANCE

   Premiums, annuity policy charges, benefits and claims, interest credited and
amortization expense are reported net  of  reinsurance  ceded and are accounted
for  on  a  basis  consistent  with those used in accounting for  the  original
policies issued and the terms of the reinsurance contracts.

SEPARATE ACCOUNTS

   The  majority  of  the balance represents  i)  unit-linked  business,  where
benefits on surrender and  maturity  are  not  guaranteed,  and  ii) investment
contracts  which  pay  fixed  benefits  to  the  policyholder  and have minimal
mortality  risk.   Separate  accounts  generally represent funds maintained  in
accounts to meet specific investment objectives  of  policyholders who bear the
investment risk.  The Company records the related liabilities  at amounts equal
to  the underlying assets.  Investment income and investment gains  and  losses
accrue  directly  to  such  policyholders.  The  assets  of  each  account  are
segregated  and  are not subject to claims that arise out of any other business
of the Company. Deposits,  net  investment income and realized gains and losses
on separate accounts assets are not reflected in the consolidated statements of
income.


<PAGE>

              STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


FOREIGN CURRENCY TRANSLATION

   The Company's foreign subsidiaries'  balance sheets and statements of income
are translated at the year end exchange rates  and  average  exchange rates for
the year, respectively. The resulting unrealized gain or loss  adjustment  from
the translation to U.S. dollars is recorded in the foreign currency translation
adjustment  as  a separate component of accumulated other comprehensive income.
Foreign exchange  gains  or losses relating to policyholders' funds in separate
accounts are allocated to the relevant separate account.

INCOME TAXES

   Deferred tax assets and  liabilities are recognized for the estimated future
tax consequences attributable  to  differences  between the financial statement
carrying amounts of existing assets and liabilities  and  their  respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected  to be
recovered  or  settled. The effect on deferred tax assets and liabilities of  a
change in tax rates  is  recognized in income in the period in which the change
is enacted.

   Standard Life and Dixie  Life filed a life/life consolidated return for 1997
and plan to file a consolidated  return  for 1998.  SMC, Standard Marketing and
other U.S. non-insurance subsidiaries are  taxed  as  regular  corporations and
file  a  consolidated return. SMC and its U.S. non-insurance subsidiaries  were
eligible to consolidate with Standard Life for income tax purposes beginning in
1996, but do not currently plan to do so.

   SMI is  incorporated  as  a holding company in the Grand Duchy of Luxembourg
and, accordingly, is not currently  subject  to  taxation  on income or capital
gains.  SMI  is  subject  to an annual capital tax which is calculated  on  the
nominal value of the statutory  shareholder's equity at an annual rate of .20%.
Premier Life (Luxembourg) is a normal commercial taxable company and is subject
to income tax at regular corporate  rates (statutory corporate rate of 37.45%),
and annual capital taxes amounting to  approximately  1%  of  its  net  equity.
Premier  Life  (Bermuda)  is  exempt  from  taxation on income until March 2016
pursuant to a decree from the Minister of Finance  in  Bermuda.  To  the extent
that  such  income  is taxable under U.S. law, such income will be included  in
SMC's consolidated return.

PRESENT VALUE OF FUTURE PROFITS

   Present value of future  profits is recorded in connection with acquisitions
of insurance companies or a block  of  policies.  The initial value is based on
the actuarially determined present value of the projected  future gross profits
from  the  in-force  business  acquired.  In  selecting  the interest  rate  to
calculate the discounted present value of the projected future  gross  profits,
the  Company  uses  the  risk  rate  of  return  believed  to  best reflect the
characteristics  of  the  purchased policies, taking into account the  relative
risks of such policies, the  cost  of  funds  to acquire the business and other
factors. The value of in force insurance purchased  is  amortized on a constant
yield basis over its  estimated life from the date of acquisition in proportion
to  the  emergence  of  profits over a period of approximately  20  years.  For
acquisitions the Company  made  on  or  before  November  19, 1992, the Company
amortizes the asset with interest at the same discount rate  used  to determine
the  present  value of future profits at the date of purchase. For acquisitions
after November  19,  1992,  the  Company amortizes the asset using the interest
rate credited to the underlying policies.

DEFERRED POLICY ACQUISITION COSTS

   Costs relating to the production of new business  (primarily commissions and
certain costs of marketing, policy  issuance and underwriting) are deferred and
included in the deferred policy acquisition  cost asset to the extent that such
costs   are   recoverable   from   future   related   policy    revenues.   For
interest-sensitive  annuities  and  other  financial products, deferred  policy
acquisition costs, with interest, are amortized  over the lives of the policies
and  products  in  a constant relationship to the present  value  of  estimated
future gross profits,  discounted  using  the  interest  rate  credited  to the
policy.  Traditional life insurance deferred policy acquisition costs are being
amortized  over  the  premium-paying  period  of  the  related  policies  using
assumptions consistent with those used in computing policy benefit reserves.



<PAGE>

              STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


   The Company reviews the recoverability of the carrying value of the deferred
policy  acquisition costs each year. For interest-sensitive annuities and other
financial  products,  the  Company  considers estimated future gross profits in
determining whether the carrying value  is  appropriate;  for  other  insurance
products,  the  Company considers estimated future premiums. In all cases,  the
Company considers  expected  mortality,  interest  earned  and crediting rates,
persistency   and  expenses.  Amortization  is  adjusted  retrospectively   for
interest-sensitive  annuities  and  other  financial products when estimates of
future gross profits to be realized are revised.

EXCESS OF ACQUISITION COST OVER NET ASSETS ACQUIRED

   The excess of the cost to acquire purchased companies over the fair value of
net assets acquired is being amortized on a  straight-line  basis  over periods
that  generally  correspond  with the benefits expected to be derived from  the
acquisitions, usually 20 to 40  years. Accumulated amortization was $.6 million
and  $.4 million at December 31, 1998  and  1997,  respectively.   The  Company
continually  monitors  the  value of excess of acquisition cost over net assets
acquired ("goodwill") based on  estimates  of future earnings. If it determines
that  goodwill  has  been  impaired,  the carrying  value  is  reduced  with  a
corresponding charge to expense.

EXCESS OF NET ASSETS ACQUIRED OVER ACQUISITION COST

   The excess of the net assets acquired  over  the  cost  to acquire purchased
companies  ("negative  goodwill"),  after  reducing the basis in  property  and
equipment and other noncurrent assets to zero, is being amortized into earnings
on a straight-line basis over a five year period.  Accumulated amortization was
$6.6 million and $5.2 million at December 31, 1998 and 1997, respectively.

STOCK OPTIONS

   The Company recognizes compensation expense  for its stock option plan using
the  intrinsic value method of accounting. Under the  terms  of  the  intrinsic
value  method,  compensation  cost  is the excess, if any, of the quoted market
price of the stock at the grant date,  or  other  measurement  date,  over  the
amount  an  employee  must  pay to acquire the stock. Under the Company's stock
option plans, no expense is recognized  since  the  exercise  price  equals  or
exceeds the market price at the measurement date.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

   As  of  January  1,  1998,  the  Company  adopted  SFAS  No. 130, "Reporting
Comprehensive  Income."  SFAS No. 130 establishes new rules for  the  reporting
and display of comprehensive  income  and its components; however, the adoption
of SFAS No. 130 had no impact on the Company's   net  income  or  shareholders'
equity.   The adoption of SFAS No. 130 requires unrealized gains or  losses  on
the Company's  securities  and  foreign  currency translation adjustments to be
included  in  other comprehensive income, which  is  a  separate  component  of
shareholders' equity.   Prior  year financial statements have been reclassified
to conform to the requirements of  SFAS No. 130.  Comprehensive income excludes
net  realized  investment gains of $.7  million  (after  income  taxes  of  $.3
million).

   In June 1997,  the  Financial Accounting Standards Board ("FASB) issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 supersedes  SFAS  No.  14  "Financial  Reporting for Segments of a
Business Enterprise" and defines financial and descriptive  information about a
company's  operating  segments  that  is  to  be  disclosed  in  the  financial
statements.   SFAS  No.  131  is effective for financial statements issued  for
fiscal years beginning after December  15,  1997 and was adopted by the Company
in  the  first  quarter  of  1998.    The Company considers  its  domestic  and
international operations to be its operating segments.  See Note 14.

   In June 1998, the Financial Accounting  Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments  and  Hedging Activities" which
is  required  to  be  adopted  in  years beginning after June  15,  1999.   The
Statement permits early adoption as  of  the  beginning  of  any fiscal quarter
after its issuance.  The Company adopted the Statement effective  July 1, 1998.
There was no material income statement impact due to the adoption of  FASB 133.
See Note 15.






1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

   Statement  of  Position 97-3, "Accounting by Insurance and Other Enterprises
for Insurance-Related  Assessments"  ("SOP  97-3")  was  issued by the American
Institute  of  Certified  Public  Accountants  in  December 1997  and  provides
guidance for determining when an insurance company or  other  enterprise should
recognize a liability for guaranty-fund assessments and guidance  for measuring
the  liability.  The statement is effective for 1999 financial statements  with
early  adoption  permitted.   The adoption of this statement is not expected to
have a material effect on the Company's financial statements.

RECLASSIFICATIONS

   Certain amounts in the 1997  and  1996 consolidated financial statements and
notes  have been reclassified to conform  with  the  1998  presentation.  These
reclassifications  had no effect on previously reported shareholders' equity or
net income in the periods presented.

2. ACQUISITIONS

   On March 12, 1998,  SMC  acquired  Savers  Life  Insurance  Company ("Savers
Life").   Each of the 1,779,908 shares of Savers Life Common Stock  outstanding
was converted  into  1.2 shares of SMC Common Stock plus $1.50.  Each holder of
Savers Life Common Stock  could elect to receive the $1.50 per share portion of
the merger consideration in  the form of additional shares of SMC Common Stock.
SMC issued approximately 2.2 million shares with a value of approximately $14.9
million and paid $2.2 million in cash and $1.5 million in acquisition costs for
an aggregate purchase price of  $18.6  million  to  acquire  Savers  Life.  SMC
increased  the  Amended  and  Restated Revolving Line of Credit Agreement  (the
"Amended Credit Agreement") to  $20.0  million  to  finance  the acquisition of
Savers Life.

   On October 30, 1998, SMC acquired Midwestern National Life Insurance Company
of  Ohio  ("Midwestern Life").  SMC issued 696,453 shares of its  common  stock
valued at $4.6 million, increased its bank debt by $6.0 million on restructured
terms by increasing  the  Amended  Credit Agreement to $26.0 million,  and paid
$2.9 million in cash and $.6 million  of  acquisition  costs  for  an aggregate
purchase price of $14.1 million to acquire Midwestern Life.

   The acquisitions of Savers Life and Midwestern Life were accounted for using
the purchase method of accounting and accordingly, SMC's consolidated financial
statements include the results of operations of the acquired companies from the
effective  dates  of their respective acquisitions.  Under purchase accounting,
SMC allocated the total  purchase price of the assets and liabilities acquired,
based on a determination of  their  fair  values  and  recorded  the  excess of
acquisition  cost over net assets acquired as goodwill, which will be amortized
on a straight  line  basis  over  30  years  and  20  years for Savers Life and
Midwestern Life, respectively.  SMC merged Savers Life and Midwestern Life into
Standard Life effective December 31, 1998, with Standard  Life as the surviving
entity.

<PAGE>

              STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITIONS (CONTINUED)

   The  following schedule summarizes the assets acquired and  the  liabilities
assumed with  the  Savers Life and Midwestern Life acquisitions described above
(in thousands):

<TABLE>
<CAPTION>
                                                        Savers       Midwestern
                                                         Life            Life
<S>                                                <C>             <C>    

         Assets acquired:
            Fixed maturity securities              $    7,055      $   99,243
            Equity securities                           2,840             174
            Mortgage loans on real estate               6,273             223
            Real estate                                 1,639              --
            Policy loans                                    9           6,480
            Short term investments                     42,745              --
            Cash                                          518           1,026
            Present value of future profits             5,960           6,999
            Other assets                                7,944           9,671
                  Total assets acquired                74,983         123,816

         Liabilities assumed:
            Policy reserves                            58,680         100,497
            Deferred federal income taxes                  --           3,073
            Other liabilities                           1,386           6,141
                  Total liabilities assumed            60,066         109,711

         Net assets acquired                           14,917          14,105
         Excess of acquisition cost over net 
            assets acquired                             3,640              25
         Total purchase price                       $  18,557       $  14,130
</TABLE>

   The following are supplemental unaudited pro forma  consolidated  results of
operations  of the Company as if the acquisitions of Savers Life and Midwestern
Life had occurred  on  January  1,  1997.  The following amounts are based upon
certain assumptions and estimates which the Company believes are reasonable and
do not reflect any benefit from savings  which  might be achieved from combined
operations.   The  amounts are not necessarily indicative  of  the  results  of
operations had these  transactions  occurred on January 1, 1997, or the results
of future operations (in thousands, except per share amounts):



                                                 Year Ended
                                                 DECEMBER 31
                                               1998      1997
   Revenues                                  $80,710    $95,883      
   Earnings available to common shareholders   2,657      3,842

   Earnings per share                            .34        .49
   Earnings per share, assuming dilution         .32        .46





<PAGE>

              STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.    INVESTMENTS

      The amortized cost, gross unrealized  gains and losses and estimated fair
value of securities available for sale are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                            December 31, 1998
<S>                                             <C>                        <C>                     <C>                <C>
                                                                       Gross                  Gross
                                             Amortized              Unrealized             Unrealized                Fair
                                               Cost                    Gains                 Losses                  Value
Securities available for sale:
     Fixed maturity securities:
         United States Treasury securities and
           obligations of United States         $34,635                    $606                    $53                $35,188
           government agencies
         Obligations of states and political      3,337                     141                     --                  3,478
           subdivisions
         Foreign government securities           46,872                     616                  4,541                 42,947
         Utilities                               23,316                     662                     74                 23,904
         Corporate bonds                        366,348                  10,965                  4,498                372,815
         Mortgaged-backed securities             66,721                     716                    312                 67,125
         Redeemable preferred stock               5,886                       8                     39                  5,855
           Total fixed maturity securities      547,115                  13,714                  9,517                551,312
     Equity securities                            1,498                       9                    191                  1,316
         Total securities available for sale   $548,613                 $13,723                 $9,708               $552,628

                                                                            December 31, 1997
                                                                       Gross                  Gross
                                             Amortized              Unrealized             Unrealized                Fair
                                               Cost                    Gains                 Losses                  Value
Securities available for sale:
     Fixed maturity securities:
         United States Treasury securities and
           obligations of United States         $27,613                    $174                    $90                $27,697
           government agencies
         Obligations of states and political      3,790                     204                     26                  3,968
           subdivisions
         Foreign government securities           30,558                     497                  3,296                 27,759
         Utilities                               26,606                     534                    109                 27,031
         Corporate bonds                        223,958                   8,140                  1,609                230,489
         Mortgaged-backed securities             51,266                     657                     60                 51,863
         Redeemable preferred stock               3,581                     188                     --                  3,769
           Total fixed maturity securities      367,372                  10,394                  5,190                372,576
     Equity securities                               55                      --                      3                     52
         Total securities available for sale   $367,427                 $10,394                 $5,193               $372,628
</TABLE>

   The estimated fair values for fixed maturity  securities are based on quoted
market  prices,  where available. For fixed maturity  securities  not  actively
traded, fair values  are  estimated  using  values  obtained  from  independent
pricing services, or by discounting expected future cash flows using  a current
market rate applicable to the coupon rate, credit rating, and maturity  of  the
investments.
<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. INVESTMENTS (CONTINUED)


   The  amortized cost and estimated fair value of fixed maturity securities at
December  31,  1998  by  contractual  maturity  are shown below (in thousands).
Actual maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties  and  because most mortgage-backed securities  provide  for  periodic
payments throughout their lives.

                                                     Amortized             Fair
                                                       COST                VALUE

Due in one year or less                             $    3,636       $     3,651
Due after one year through five years                   92,862            93,959
Due after five years through ten years                 163,869           163,208
Due after ten years                                    214,141           217,514
   Subtotal                                            474,508           478,332
Redeemable preferred stock                               5,886             5,855
Mortgage-backed securities                              66,721            67,125
   Total fixed maturity securities                    $547,115          $551,312

      The Company  maintains  a  highly-diversified  investment  portfolio with
limited concentration of financial instruments in any given region, industry or
economic characteristic. At December 31, 1998, the Company held no  investments
in  any entity in excess of 10% of shareholders' equity other than asset-backed
securities  and  investments  issued  or guaranteed by the U.S. government or a
U.S.  government  agency,  all  of  which were  classified  as  fixed  maturity
securities available for sale.

      Net investment income was attributable to the following (in thousands):

<TABLE>
<CAPTION>
                                                                               Year Ended December 31
<S>                                                  <C>                         <C>                         <C>
                                                     1998                        1997                        1996
Fixed maturity securities                            $30,484                     $27,151                     $19,865
Common stocks                                        46                          --                          --
Mortgage loans on real estate                        679                         123                         309
Policy loans                                         654                         618                         447
Real estate                                          135                         58                          65
Short-term investments and other                     3,291                       2,098                       602
     Gross investment income                         35,289                      30,048                      21,288
Less: investment expenses                            709                         532                         417
     Net investment income                           $34,580                     $29,516                     $20,871


Net realized investment gains arose from the following (in thousands):
                                                                               Year Ended December 31
                                                     1998                        1997                        1996
Fixed maturity securities available for sale:
     Gross realized gains                            $2,570                      $2,209                      $2,111
     Gross realized losses                           2,074                       1,695                       913
         Net                                         496                         514                         1,198
Real estate                                          --                          26                          --
Other gains (losses)                                 (143)                       (144)                       104
     Net realized investment gains                   $353                        $396                        $1,302
</TABLE>



3.    INVESTMENTS (CONTINUED)

      Life insurance companies are required  to  maintain  certain  amounts  of
assets  with  state or other regulatory authorities. At December 31, 1998 fixed
maturity securities  of  $20.9  million  and cash and short-term investments of
$2.5 million were held on deposit by various  state  regulatory  authorities in
compliance with statutory regulations. Additionally, fixed maturity  securities
of $.3 million and short-term investments of $6.2 million of SMI were held by a
custodian bank approved by the Luxembourg regulatory authorities to comply with
local insurance laws.


4.    DEFERRED POLICY ACQUISITION COSTS AND PRESENT VALUE OF FUTURE PROFITS

      The activity related to the deferred policy acquisition costs of business
produced is summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                               Year Ended December 31
<S>                                                  <C>                         <C>                         <C>
                                                     1998                        1997                        1996
Balance, beginning of year                           $21,435                     $18,309                     $10,054
     Additions                                       13,542                      7,005                       6,400
     Amortization                                    (2,658)                     (1,456)                     (1,221)
     Adjustment relating to net unrealized (gain)
     loss on securities available for sale           627                         (2,423)                     3,076
Balance, end of year                                 $32,946                     $21,435                     $18,309

     The  activity related  to  the  present  value of future profits of the business acquired  is
summarized as follows (in thousands):
                                                                               Year Ended December 31
                                                     1998                        1997                        1996
Balance, beginning of year                           $20,537                     $23,806                     $15,246
      Amounts related to acquisitions and disposals  10,401                      (1,374)                     9,615
      Interest accreted on unamortized balance       4,223                       3,178                       2,563
      Gross amortization during the year             (6,088)                     (4,844)                     (3,812)
      Adjustments relating to net unrealized (gain)
      loss on securities available for sale          (280)                       (229)                       194
Balance, end of year                                 $28,793                     $20,537                     $23,806
</TABLE>

      The percentages of future  expected  net  amortization  of  the beginning
balance  of  the  present  value  of  future profits, before the effect of  net
unrealized gains and losses, will be between  6%  and  9%  in each of the years
1999 through 2003.  Future net amortization is based on the  present  value  of
future profits at December 31, 1998 and current assumptions as to future events
on all policies in force.

      The  discount  rate used to calculate the present value of future profits
reflected in the Company's  consolidated  balance  sheets at December 31, 1998,
ranged from 7.5% to 18%. The Company used a 13% discount  rate to calculate the
present  value  of  future  profits  on  the  Savers  Life and Midwestern  Life
acquisitions.


<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5.    NOTES PAYABLE

      Notes payable were as follows (in thousands):


<TABLE>
<CAPTION>
                                               Interest                                  December 31
                                                 Rate
<S>                                             <C>                  <C>                         <C>
                                                                     1998                        1997
Borrowings under revolving credit agreements     8.52%{ (1)}         $25,000                     $16,000
Senior subordinated convertible notes           10.00%               10,000                      10,000
                                                                     $35,000                     $26,000
</TABLE>

(1) Current weighted average rate at December 31, 1998.

BORROWINGS UNDER REVOLVING CREDIT AGREEMENTS

      Standard  Management  has  outstanding borrowings at  December  31,  1998
pursuant to the Amended Credit Agreement  that  provides for it to borrow up to
$26.0 million in the form of a seven-year reducing  revolving loan arrangement.
Standard Management has agreed to pay a non-use fee of  .50%  per  annum on the
unused  portion of the commitment. In connection with the original and  Amended
Credit Agreement,  SMC issued warrants to the bank to purchase 93,500 shares of
Common Stock. Borrowings  under  the  Amended  Credit Agreement may be used for
contributions to surplus of insurance subsidiaries,  acquisition  financing and
repurchases of Common Stock. The debt is secured by a Pledge Agreement  of  all
of  the  issued  and  outstanding  shares  of Common stock of Standard Life and
Standard  Marketing.  Interest  on  the borrowings  under  the  Amended  Credit
Agreement is determined, at the option of SMC, to be: (i) a fluctuating rate of
interest to the corporate base rate announced by the bank periodically, plus 1%
per annum, or (ii) a rate at LIBOR plus  3.25%.   The repayment schedule of the
$25.0 million includes $3.3 million due March 2000  and  $4.3 million each year
thereafter  to  March  2005.   Indebtedness incurred under the  Amended  Credit
Agreement is subject to certain  restrictions  and  covenants  including, among
other  things,  certain  minimum financial ratios, minimum consolidated  equity
requirements  for  SMC,  positive   net   income,   minimum  statutory  surplus
requirements for the Company's insurance subsidiaries  and  certain limitations
on acquisitions, additional indebtedness, investments, mergers,  consolidations
and sales of assets.

      SMI  has an unused line of credit of $1.7 million, with no borrowings  in
connection with this line of credit in 1998 or 1997.

SENIOR SUBORDINATED CONVERTIBLE NOTES

      In connection  with  the  acquisition of Shelby Life, Standard Management
borrowed $4.0 million from an insurance  company  pursuant  to  a  subordinated
convertible debt agreement which was due in December 2003.  At June  30,  1997,
this  subordinated  convertible  debt  agreement  was  amended to the principal
amount of $4.4 million which is due July 2004, unless previously converted, and
requires interest payments in cash on January 1 and July  1 of each year at 10%
per annum.  At June 30, 1997, Standard Management borrowed  an  additional $5.6
million from the insurance company pursuant to another subordinated convertible
debt  agreement  (collectively,  the  "Notes"),  which is due July 2004  unless
previously converted, and also requires interest payments  in cash on January 1
and  July  1  of  each  year  at  10% per annum.  Proceeds from the  additional
borrowings were used for contributions  to surplus of insurance subsidiaries of
$2.4  million,  redemption of Class S Preferred  Stock  of  approximately  $1.8
million (SEE NOTE  7),  and  other  general  corporate purposes.  The Notes are
convertible at any time at the option of the noteholders  into SMC Common Stock
at the rate of $5.747 per share.  The Notes may be prepaid  in whole or in part
at the option of Standard Management commencing on July 1, 2000  at  redemption
prices  equal  to  105%  of  the  principal  amount (plus accrued interest) and
declining to 102% of the principal amount plus accrued interest.  The Notes may
be prepaid prior to July 1, 2000 at a redemption  price  equal  to  101% of the
principal  amount  (plus accrued interest) under certain limited circumstances.
The Notes are subject  to  certain  restrictions  and  covenants  substantially
similar to those in the Amended Credit Agreement.

INTEREST PAID

      Cash paid for interest was $2.7 million, $1.5 million, and $.4 million in
1998, 1997 and 1996, respectively.

<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.    INCOME TAXES

      The components of the federal income tax expense (benefit), applicable to
pre-tax income before extraordinary gains, were as follows (in thousands):
<TABLE>
<CAPTION>
                                                                               Year Ended December 31
<S>                                                  <C>                         <C>                         <C>
                                                     1998                        1997                        1996
Current taxes (benefit)                              $673                        $(570)                      $(888)
Deferred taxes                                       957                         1,187                       158
                                                     $1,630                      $617                        $(730)
</TABLE>

      The  effective  tax rate on pre-tax income before extraordinary  gain  is
lower than the statutory  corporate  federal  income  tax  rate  as follows (in
thousands):
<TABLE>
<CAPTION>
                                                                                Year Ended December 31
<S>                                                        <C>                      <C>                      <C>
                                                           1998                     1997                     1996
Federal income tax expense at statutory rates (34%)        $2,146                   $1,109                   $1,202
Nonrecognition of losses in SMC consolidated return and 
  in foreign subsidiaries                                  --                       314                      543
Amortization of excess of net assets acquired over         (472)                    (472)                    (472)
  acquisition cost
Tax benefit from disposal of subsidiary                    --                       --                       (1,420)
Tax benefits from capital loss carryforwards not           --                       (200)                    --
  previously recognized
Release of reserve for tax adjustments                     --                       (100)                    (325)
Other items, net                                           (44)                     (34)                     (258)
   Federal income tax expense (benefit)                    $1,630                   $617                     $(730)
Effective tax rate                                         26%                      19%                      (21)%
</TABLE>

   The Company recovered $1.7 million, $1.3 million and $.1 million  in federal
income  taxes  in  1998,  1997  and 1996, respectively, and paid federal income
taxes of $.7 million, $.2 million  and  $.9  million  in  1998,  1997 and 1996,
respectively.

   Deferred  income taxes reflect the net tax effects of temporary  differences
between the carrying  amounts of assets and liabilities for financial reporting
purposes and the amounts  used  for  tax return purposes. Significant temporary
differences included in the Company's  deferred tax assets (liabilities) are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                                           December 31
<S>                                                                  <C>                                  <C>
                                                                     1998                                 1997
Deferred income tax assets:
     Future policy benefits                                          $12,338                              $9,368
     Capital and net operating loss carryforwards                    5,556                                6,123
     Other-net                                                       1,567                                1,126
         Gross deferred tax assets                                   19,461                               16,617
     Valuation allowance for deferred tax assets                     (9,023)                              (6,962)
         Deferred income tax assets, net of valuation allowance      10,438                               9,655
Deferred income tax liabilities:
     Unrealized gain on securities available for sale                (2,514)                              (1,820)
     Present value of future profits                                 (9,791)                              (6,983)
     Deferred policy acquisition costs                               (5,753)                              (5,340)
         Total deferred income tax liabilities                       (18,058)                             (14,143)
     Net deferred income tax liabilities                             $(7,620)                             $(4,488)
</TABLE>

<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)


   The Company is required to establish a "valuation allowance" for any portion
of its deferred tax assets which are unlikely  to  be  realized.  The valuation
allowance  for deferred tax assets includes $1.0 million at December  31,  1998
with respect  to corporate income tax loss carryforwards of Standard Management
International,  S.A.  which,  if  recognized  in  the future, will result in an
addition to negative goodwill and be amortized into  income  over its remaining
life. The valuation allowance for deferred tax assets includes  $1.8 million at
December  31,  1998  with  respect  to  deferred  tax  assets  at  the date  of
acquisition and net tax operating loss carry forwards of Dixie Life  and Shelby
Life which, if recognized in the future, will result in a reduction to goodwill
and  be  amortized  into  income  over  its remaining life by reducing goodwill
amortization expense.


   As  of  December  31,  1998,  Standard  Management   and   its  noninsurance
subsidiaries had consolidated net operating loss carryforwards of approximately
$9.4  million  for  tax  return  purposes which expire from 2005 through  2012.
These carryforwards will only be available  to  reduce  the  taxable  income of
Standard  Management.   At  December  31,  1998, the Standard Life consolidated
return had net operating loss carryforwards of approximately $4.1 million which
expire in 2010 and 2018. As a result of the  change  in ownership of Midwestern
Life,  $1.1  million  of  these  loss carryforwards are subject  to  an  annual
limitation of $.7 million.  These  carryforwards  will  only  be  available  to
reduce  the  taxable  income  of  the  Standard  Life  consolidated return.  At
December 31, 1998, Premier Life (Luxembourg) had accumulated  corporate  income
tax  loss  carryforwards  of  approximately  $2.6  million, all of which may be
carried forward indefinitely.

   The Internal Revenue Service has completed its examination  of  the  Company
for years through 1993 in 1996. All adjustments to taxable income determined by
completed examinations, which were not material, have reduced the net operating
loss  carryforwards.  Upon  completion  of  the  examination, a tax reserve for
adjustments of $.3 million was released and recorded  in  income  in  1996.  In
1997,  the Internal Revenue Service completed its examination of Standard  Life
through  1996.  All adjustments including a tax benefit from previously expired
capital loss  carryforwards  were  settled  during  1997 resulting in a net tax
benefit of approximately $.2 million during 1997 and  upon  completion  of  the
examination,  a  tax  reserve  for adjustments of $.1 million was released into
income in 1997.

7. SHAREHOLDERS' EQUITY

REDEEMABLE PREFERRED STOCK

   Shareholders have authorized  1,000,000  shares  of  Preferred  Stock. Other
terms,  including preferences, voting and conversion rights, may be established
by the Board of Directors.

   In 1995, 300,000 shares of the authorized preferred stock were designated as
Class S cumulative  convertible  redeemable preferred stock ("Class S preferred
stock").  In February 1996 these shares  were  issued  at a par value of $10.00
per share.  The Company repurchased and retired 140,111  of  these  shares at a
cost  of $1.0 million in 1996, which resulted in an extraordinary gain  of  $.5
million.   Effective August  1997, SMC redeemed the remaining Class S preferred
stock for $1.8 million.

   In 1998, 130,000 shares of the authorized preferred stock were designated as
Series A convertible  redeemable  preferred stock ("Series A preferred stock").
The Company issued 65,300 shares with  a stated value of $6.5 million ($100 per
share) in 1998.  The following, among other  things, are characteristics of the
Series A preferred stock:

<circle>The holders are entitled to cumulative  annual  dividends  of $7.75 per
   share (payable quarterly).

<circle>Conversion into 11.767 shares of SMC common stock per share of Series A
   preferred stock.

<circle>Redeemable on July 1, 2003.

<circle>Redemption  by the Company may occur at 105% of stated value  beginning
   July 1, 1999 and decreasing 1% per year to 100% at July 1, 2003.

<circle>There are no voting rights attached to these shares.

<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SHAREHOLDERS' EQUITY (CONTINUED)

COMMON STOCK

   The Company repurchased  308,465,  154,903,   and  431,026  shares of Common
Stock for $1.7 million, $1.1 million,  and $2.1 million in 1998, 1997 and 1996,
respectively  under  its stock repurchase program.  At December 31,  1998,  the
Company was authorized  to  purchase  an additional 1,057,179 shares under this
program.

   The following table represents outstanding warrants to purchase Common Stock
as of December 31, 1998:

                                               Exercise       Warrants
         ISSUE DATE          EXPIRATION DATE    PRICE       OUTSTANDING

         June 1989           December 1999   $3.5216        229,430
         January 1994        January 1999     7.8571         42,000
         November 1995       November 2002    4.5238         31,500
         July 1996           July 2003        4.3750         30,000
         September 1996      September 1999   5.5000         16,500
         April 1997          April 2004       5.1250         12,000
         July 1997           July 2000        5.7500         75,000
         September 1997      September 2000   7.5000         15,000
         February 1998       August 2000      8.2500         50,000
         October 1998        October 2001     8.0000         75,000
         October 1998        October 2001     7.1250         20,000
                                                            596,430


CHANGES IN SHARES OF COMMON STOCK AND TREASURY STOCK

      The  following table represents changes  in  the  number  of  common  and
treasury shares as of December 31:



<TABLE>
<CAPTION>
                                           1998            1997          1996
<S>                                       <C>             <C>           <C>
Common Stock:
         Balance, beginning of year       5,752,499       5,752,499     5,459,573
              Issuance of common stock    3,049,814              --        20,000
              5% common stock dividend           --              --       272,926
         Balance, end of year             8,802,313       5,752,499     5,752,499

Treasury Stock:
         Balance, beginning of year       (876,009)       (728,229)     (502,025)
              Treasury stock acquired     (308,465)       (154,903)     (431,026)
              5% common stock dividend           --              --      (46,402)
              Reissuance of treasury stock in
                    connection with exercise of
                    stock options            23,615           7,123         1,224
              Reissuance of treasury stock in
                     connection with purchase of
                     Shelby Life                 --              --       250,000
         Balance, end of year           (1,160,859)       (876,009)     (728,229)
<PAGE>

</TABLE>
               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7.       SHAREHOLDERS' EQUITY (CONTINUED)

UNREALIZED GAIN ON SECURITIES

   The components  of  the balance sheet caption "Unrealized gain on securities
available for sale" in shareholders'  equity  are  summarized  as  follows  (in
thousands):

<TABLE>
<CAPTION>
                                                                                           December 31
<S>                                                                  <C>                                  <C>
                                                                     1998                                 1997
Fair value of securities available for sale                          $552,628                             $372,628
Amortized cost of securities available for sale                      548,613                              367,427
     Gross unrealized gain on securities available for sale          4,015                                5,201
Adjustments for:
     Deferred policy acquisition costs                               (1,101)                              (1,727)
     Present value of future profits                                 (489)                                (209)
     Deferred federal income tax liability                           (765)                                (1,094)
         Net unrealized gain on securities available for sale        $1,660                               $2,171
</TABLE>


8.    STOCK OPTION PLAN

      SMC  has  a  non-qualified  Stock  Option  Plan  (the "Plan") under which
2,500,000 shares of Common Stock are reserved for grants  of  stock  options to
employees  and  directors.  The purchase price per share specified in any  Plan
option must be at least equal  to  the fair market value of common stock at the
grant date. Options generally become  exercisable  over a three-year period and
have a term of 10 years. The Plan is administered by the Board of Directors and
officers of SMC. The terms of the options, including  the  number of shares and
the  exercise  price,  are  subject  to  the  sole discretion of the  Board  of
Directors.  A total of 490,533 shares are available for future issuance for the
Plan as of December 31, 1998.

      SFAS No. 123 entitled "Accounting for Stock-Based Compensation" issued in
October  1995,  was  adopted  by  the  Company as of  December  31,  1997.  The
provisions of SFAS No. 123 allows companies  to  either  expense  the estimated
fair value of stock options or to continue their current practice and  disclose
the  pro forma effects on net income and earnings per share had the fair  value
of the  options been expensed. The Company has elected to continue its practice
of recognizing  compensation  expense  for  its  Plan using the intrinsic value
based method of accounting and to provide the required  pro  forma information.
Had compensation cost for the Plan been determined based on the  fair  value at
the grant date for awards under the Plan consistent with the provisions of SFAS
No.  123,  the  Company's pro forma net income and pro forma earnings per share
would have been the following (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                           Year Ended December 31
<S>                                  <C>                       <C>                      <C>
                                     1998                      1997                     1996
Net income                           $3,094                    $623                     $3,227
Earnings per share                      .43                     .11                        .62
Earnings per share, assuming dilution   .43                     .11                        .60
</TABLE>

      The fair value  of  each  option  grant is estimated on the date of grant
using   the   Black-Scholes   option-valuation   model   with   the   following
weighted-average assumptions :

                                     1998           1997          1996
Risk-free interest rates             5.6%            5.7%          5.9%
Volatility factors                   .55             .37           .49
Weighted average expected life      7 years        7 years       7 years


<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8.    STOCK OPTION PLAN (CONTINUED)

      The  Black-Scholes option  valuation  model  was  developed  for  use  in
estimating the  fair value of traded options which have no vesting restrictions
and are fully transferrable.   In addition, option valuation models require the
input  of highly subjective assumptions  including  the  expected  stock  price
volatility.   Because the Company's employee stock options have characteristics
significantly different  from  those  of traded options, and because changes in
subjective  assumptions  can materially affect  the  fair  value  estimate,  in
management's opinion, the  existing  models  do  not  provide a reliable single
measure of the fair value of its employee stock options.   Because SFAS No. 123
is  effective  only  for awards granted after January 1, 1995,  the  pro  forma
disclosures provided may  not  be representative of the effects on reported net
income for future years.

      A summary of the Company's  stock option activity and related information
for the years ended December 31, 1998, 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
                                          1998                                 1997                             1996
<S>                            <C>               <C>               <C>              <C>             <C>             <C>
                                                  Weighted-                          Weighted-                      Weighted-
                                                   Average                            Average                        Average
                                                  Exercise                           Exercise                       Exercise
                                                    Price                              Price                          Price
                                 Shares                              Shares                           Shares
Options outstanding, beginning 1,916,820         $6.08             1,446,169        $5.98           1,164,720       $6.46
  of year
Exercised                      (97,988)          5.23              (17,300)         4.52            (1,224)          3.57
Granted                        79,950            6.94              685,000          6.29            769,122          6.14
Expired or forfeited           (7,495)           6.75              (197,049)        4.30            (486,449)        7.56
Options outstanding, end of    1,891,287         6.15              1,916,820        6.08            1,446,169        5.98
  year
Options exercisable, end of    1,664,153                           1,467,185                        1,097,028
  year
Weighted-average fair value of
  options granted during       $   4.42                            $   3.10                         $   3.62
  the year
</TABLE>


      Information with respect to stock  options  outstanding  at  December 31,
1998 is as follows:

<TABLE>
<CAPTION>
                               Options Outstanding                   Options Exercisable
<S>                <C>             <C>              <C>            <C>           <C>
                                    Weighted-       Weighted-                    Weighted-
  Range of                           Average         Average                      Average
  Exercise           Number         Remaining       Exercise        Number       Exercise
   Prices          Outstanding     Contractual        Price       Exercisable      Price
                                      Life
                                     (years)
    $3-5           348,988         7                $4.40          318,988       $4.36
     5-7           988,867         8                6.03           811,733       5.93
     7-9           534,532         7                7.42           514,532       7.41
    9-11           18,900          5                9.40           18,900        9.40
                   1,891,287                                       1,664,153
</TABLE>

<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.    REINSURANCE

      The  Company's  insurance  subsidiaries  have  entered  into  reinsurance
agreements  with  non-affiliated  companies to limit the net loss arising  from
large risks, maintain their exposure  to loss within capital resources, provide
additional capacity for future growth and enter into sharing arrangements.  The
maximum amount of life insurance retained  on  any one life ranges from $30,000
to $150,000.  Amounts of standard risk in excess of that limit are reinsured.

      Reinsurance premiums ceded to other insurers  were  $17.0  million,  $4.8
million,  and  $2.2  million in 1998, 1997 and 1996, respectively.  Reinsurance
ceded has reduced benefits  and claims incurred by $10.5 million, $5.4 million,
and $6.2 million in 1998, 1997  and 1996, respectively.  A contingent liability
exists to the extent any of the reinsuring  companies  are unable to meet their
obligations  under  the  reinsurance  agreements.   To  minimize   exposure  to
significant  losses  from  reinsurance insolvencies, the Company evaluates  the
financial condition of its reinsurers  and  monitors  concentrations  of credit
risk   arising   from   similar  geographic  regions,  activities  or  economic
characteristics of the reinsurers.   Based  on  its  periodic  reviews of these
companies, the Company believes the assuming companies are able  to  honor  all
contractual commitments under the reinsurance agreements.

      At  December  31,  1998 the Company's largest annuity reinsurer, which is
rated "A" (Excellent) by A.M.  Best,  represented  $33.7  million,  or 56.3% of
total reinsurance recoverable and $6.5 million of premium deposits ceded.  From
January 1, 1996 to March 31, 1996, approximately 50% of Standard Life's annuity
business was ceded.  Effective April 1, 1996, Standard Life reduced it  to  25%
and effective October 1, 1998, discontinued ceding its annuity business.

      On  July  1, 1998, Savers Life's medicare supplement business was sold to
Oxford Life Insurance  Company  through  a  quota  share reinsurance agreement.
Under the terms of the reinsurance agreement, Savers  Life  will administer the
medicare   supplement   business   through   July  1,  1999  and  will  receive
administration fee income.  Effective December 31, 1998, Standard Life replaced
Savers Life as a party to this reinsurance agreement and became responsible for
the administration of the Medicare Supplement business.

10.   RELATED PARTY TRANSACTIONS

      On October 28, 1997, SMC made an interest-free  loan  to  an  officer and
director of SMC, in the amount of $778,000, representing a new loan in  the sum
of  $438,000  and consolidation of an existing loan.  The principal balance  of
the loan was $778,000  at  December 31, 1998 and 1997.  Repayment is due within
10 days of the officer's voluntary  termination or resignation as an officer of
SMC.   In  the event of a termination of  the  officer's  employment  with  SMC
following a change in control, the loan is deemed to be forgiven.

      On September 2, 1998, SMC made a loan to a director of SMC, in the amount
of $120,000  with an interest rate of prime plus 1%.  At December 31, 1998, the
principal balance of the loan was $58,500.

      SMC entered  into  a  covenant  not  to  compete  agreement with a former
officer and director in February 1997, effective July 1,  1996,  the  date  his
employment agreement terminated. In accordance with the covenant not to compete
agreement,  the officer and director received payments of $275,000 and $125,000
in 1997 and 1998, respectively,  and will receive $100,000 in 1999.

      SMC is  a  guarantor  on  a  $70,000 loan to a director and officer.  The
guaranty will be effective until the  earlier  of  repayment  of  the  loan  or
June 25, 1999.

      Certain  officers  and directors purchased 31,000 shares, or $3.1 million
of the Series A preferred stock as described in
Note 7.  These shares were  purchased  in  connection  with a loan agreement of
$2.6 million which the Company has guaranteed.

<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11.   COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

      The Company rents office and storage space under noncancellable operating
leases. The Company incurred rent expense for operating leases of $1.0 million,
$.9 million, and $1.0 million in 1998, 1997 and 1996, respectively. Pursuant to
the terms of a lease agreement effective June 1, 1991, Standard Life has agreed
to lease office space for a ten year period. After the initial  ten  year lease
period,  Standard  Life may continue to lease the premises on a month to  month
basis at a rental of 125% of the prevailing market rate for the leased premises
in effect at that time.

      Future required  minimum  rental  payments, by year and in the aggregate,
under operating leases as of December 31, 1998, are as follows (in thousands):

            1999                                       $   913
            2000                                           805
            2001                                           429
            2002                                           128
            2003                                           128
            Thereafter                                      16
            Total minimum lease payments                $2,419


EMPLOYMENT AGREEMENTS

      Certain officers are employed pursuant to executive employment agreements
that create certain liabilities in the event  of the termination of the covered
executives following a change in control of the  Company.  The commitment under
these  agreements is approximately three times their current  annual  salaries.
Additionally,  following  termination  from  the  Company  due  to  a change in
control, each executive is entitled to receive a lump sum payment equal  to all
unexercised  stock  options  granted  multiplied  by the highest per share fair
market value during the six month period ending on  the  date  of  termination.
There were unexercised options outstanding to these executives to buy 1,327,880
shares at December 31, 1998.

12.   LITIGATION

      An  officer  and  director of SMC resigned effective April 15, 1997.   On
June 19, 1997, this former officer commenced an action in the Superior Court of
Marion County, Indiana against  SMC  claiming  that  his  employment  agreement
contained  a  provision  to  the  effect  that,  following a termination of his
employment  with  SMC  under certain circumstances, he  would  be  entitled  to
receive certain benefits.   This  former officer has asserted to SMC that he is
entitled to a lump sum termination  payment  of  $1.7  million  and  liquidated
damages  not exceeding $3.3 million by virtue of his voluntarily leaving  SMC's
employment.   SMC disputes those claims.  SMC filed its Answer and Counterclaim
on September 11, 1997.  SMC's investigation since the action was filed revealed
a basis for the  termination  of  employment  of  the  former officer for cause
relative  to  after-acquired  evidence.   On  October 14, 1997,  the  Board  of
Directors of SMC terminated the former officer  for  cause  effective March 15,
1997.  Such termination will also be argued by SMC as a complete defense to all
claims  asserted  by the former officer.  The ultimate outcome  of  the  action
cannot presently be  determined.   Accordingly,  no provision for any liability
that  may  result  has  been  made  in the consolidated  financial  statements.
Management believes that the conclusion  of  such  litigation  will  not have a
material adverse effect on SMC's consolidated financial condition.

      In addition, the Company is involved in various legal proceedings  in the
normal course of business. In most cases, such proceedings involve claims under
insurance  policies  or  other  contracts of the Company. The outcomes of these
legal proceedings are not expected  to  have  a  material adverse effect on the
consolidated financial position, liquidity or future  results  of operations of
the Company based on the Company's current understanding of the  relevant facts
and law.


<PAGE>


               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13.   STATUTORY ACCOUNTING INFORMATION OF SUBSIDIARIES

      The Company's U.S. life insurance subsidiaries maintain their  records in
conformity with statutory accounting practices prescribed or permitted by state
insurance  regulatory  authorities.  Statutory  accounting practices differ  in
certain respects from GAAP. In consolidation, adjustments  have  been  made  to
conform the Company's domestic subsidiaries' accounts with GAAP.

      The Company's U.S. life insurance subsidiaries had consolidated statutory
capital and surplus of $43.6 million and $25.9 million at December 31, 1998 and
1997,  respectively,  after  elimination of subsidiaries intercompany accounts.
Consolidated net income of the  Company's  life  insurance  subsidiaries  on  a
statutory  basis,  after  elimination of subsidiaries intercompany accounts was
$1.7 million, $1.8 million,  and  $3.3 million for the years ended December 31,
1998,  1997  and 1996, respectively.  Minimum  statutory  capital  and  surplus
required by the Indiana Insurance Code was $.5 million as of December 31, 1998.

      "Prescribed"   statutory   accounting  practices  include  a  variety  of
publications of the National Association  of  Insurance Commissioners ("NAIC"),
as  well  as  state  laws,  regulations,  and  general   administrative  rules.
"Permitted"  statutory accounting practices encompass all accounting  practices
that are not prescribed;  such  practices  may  differ from state to state, may
differ from company to company within a state and may change in the future. The
NAIC currently is in the process of codifying statutory  accounting  practices,
the  result  of which is expected to constitute the only source of "prescribed"
statutory accounting practices. Accordingly, that project, which is expected to
be adopted by  states  with  an  implementation  date  of January 1, 2001, will
likely change, to some extent, prescribed statutory accounting  practices,  and
may  result  in  changes to the accounting practices that insurance enterprises
use to prepare their statutory financial statements.

      Effective December  31,  1998, Standard Life strengthened policy reserves
by $.3 million pursuant to the statutory Actuarial Guideline 33.  Standard Life
received permission from the Indiana  Department  of  Insurance Commissioner to
grade in the remaining effect of Actuarial Guideline 33 in 1999 and 2000.  This
permitted accounting practice increased statutory surplus  by  $.7  million  at
December 31, 1998.

      Policy  reserves  for  Dixie Life's fixed premium universal life policies
were  calculated  according  to the  Commissioners'  Reserve  Valuation  Method
("CRVM") for traditional whole  life  policies.  This  differs  from prescribed
statutory accounting practices. Effective October 2, 1995, Dixie  Life received
permission from the Mississippi Insurance Department to strengthen the reserves
for  these policies by using the CRVM methodology as modified by the  Universal
Life Model  Regulation.  This  reserve  strengthening  was  recorded  quarterly
through September 30, 1998.

      From  the  funds borrowed by SMC pursuant to the Amended Credit Agreement
and the subordinated  convertible  debt agreement, $27.0 million ($13.0 million
at December 31, 1997) was loaned to  Standard  Life  pursuant  to  an Unsecured
Surplus Debenture Agreement ("Surplus Debenture") which requires Standard  Life
to  make  quarterly  interest payments to SMC at a variable corporate base rate
plus 2% per annum, and  annual  principal  payments  of  $1.0  million per year
beginning  in  2007  and  concluding  in  2033. As required by state regulatory
authorities, the balance of the surplus debenture at December 31, 1998 and 1997
of $27.0 million and $13.0 million, respectively,  is  classified  as a part of
capital  and surplus of Standard Life. The interest and principal payments  are
subject to quarterly approval by the Indiana Department of Insurance, depending
upon satisfaction  of  certain  financial  tests relating to levels of Standard
Life's capital and surplus and general approval  of  the  Commissioner  of  the
Indiana Department of Insurance.

      SMC's ability to pay operating expenses and meet debt service obligations
is  partially  dependent  upon  the  amount of dividends received from Standard
Life.  Standard  Life's ability to pay cash  dividends  to  SMC  is,  in  turn,
restricted  by  law   or  subject  to  approval  by  the  insurance  regulatory
authorities of Indiana.  Dividends  are permitted based on, among other things,
the level of the preceding year statutory  surplus and net income.  In 1997 and
1996,  Standard  Life  paid  dividends  of  $1.6  million   and  $1.0  million,
respectively,  to SMC.   During 1999, Standard Life can pay dividends  of  $4.4
million without  regulatory  approval;  Standard  Life  must notify the Indiana
regulatory  authorities  of the intent to pay dividends at  least  thirty  days
prior to payment.

      State insurance regulatory  authorities impose minimum risk-based capital
requirements on insurance enterprises  that  were  developed  by  the NAIC. The
formulas  for  determining  the  amount  of  risk-based capital ("RBC") specify
various weighting factors that are applied to  financial  balances  or  various
levels  of  activity  based on the perceived degree of investment and insurance
risks. Regulatory compliance  is  determined  by  a  ratio (the "Ratio") of the
enterprise's regulatory total adjusted capital, as defined  by the NAIC, to its
authorized  control  level  RBC,  as  defined  by  the NAIC. Enterprises  below
specific trigger points or ratios are classified within certain levels, each of
which  requires specified corrective action.  At December  31,  1998,  the  RBC
Ratios of  Standard Life and Dixie Life were both at least two and a half times
greater than the levels at which company action is required.


<PAGE>


               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13.   STATUTORY ACCOUNTING INFORMATION OF SUBSIDIARIES (CONTINUED)

      The statutory  capital and surplus for Premier Life (Luxembourg) was $6.8
million and $7.3 million at fiscal years ended 1998 and 1997, respectively, and
minimum capital and surplus  under local insurance regulations was $2.9 million
at fiscal years ended 1998 and  1997.   The  statutory  capital and surplus for
Premier Life (Bermuda) was $2.1 million and $1.4 million  at fiscal years ended
1998  and  1997,  respectively,  and  minimum capital and surplus  under  local
insurance regulations was $.3 million at  fiscal years ended 1998 and 1997. SMI
dividends are limited to its accumulated earnings  without regulatory approval.
SMI and Premier Life (Luxembourg) were not permitted  to  pay  dividends  under
Luxembourg law in 1998 and 1997 due to accumulated losses.


14.   OPERATIONS BY BUSINESS SEGMENT

      In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an   Enterprise  and  Related  Information."   Under  this  new  pronouncement,
effective  for  financial  statements  issued  for fiscal years beginning after
December 15, 1997, a company must provide disclosures  about operating segments
on  the  same  basis  it  uses  internally to evaluate the performance  of  its
operations and allocate its resources.   The  Company  identified the following
two operating segments which are the primary components of its business.


      DOMESTIC OPERATIONS includes revenues earned and expenses  incurred  from
United  States  operations  and  includes  deposits  and/or income from annuity
products (primarily FPDA's), equity indexed products,  universal  life products
and  traditional  life products.  The profitability for this segment  primarily
depends on the investment  spread  earned  (annuities  and universal life), the
persistency of the in-force business, claim experience and expense management.

      INTERNATIONAL OPERATIONS includes revenues earned  and  expenses incurred
from  abroad,  primarily  Europe, and includes fees collected on deposits  from
unit-linked products.  The  profitability for this segment primarily depends on
the amount of separate account  assets  under  management,  the  management fee
charged on those assets and expense management.

      The accounting policies of the segments are the same as described in Note
1 (Summary of Significant Accounting Policies).

      The following segment presentation contains the same operating  data  and
results  the  Company  uses  to  evaluate  the  performance of the business and
provides reconciliations to consolidated totals (in thousands):


<TABLE>
<CAPTION>
                                                                             Year Ended December 31
<S>                                                <C>                         <C>                         <C>
                                                   1998                        1997                        1996
Revenues:
     Domestic                                      $58,055                     $42,651                     $36,524
     International                                 4,815                       3,960                       3,681
         Consolidated Revenues                     $62,870                     $46,611                     $40,205
Net Investment Income:
     Domestic                                      $33,721                     $28,614                     $20,132
     International                                 859                         902                         739
         Consolidated Net Investment Income        $34,580                     $29,516                     $20,871
Interest Credited on Interest Sensitive Annuities
and Other                                          $19,775                     $16,281                     $11,092
     Financial Products (All Domestic)
Pre-tax Income:
     Domestic                                      $4,053                      $1,542                      $2,292
     International                                 2,258                       1,720                       1,243
         Consolidated Pre-tax Income               $6,311                      $3,262                      $3,535
Assets:
     Domestic                                      $750,683                    $508,476                    $486,576
     International                                 205,467                     160,516                     141,837
         Consolidated Assets                       $956,150                    $668,992                    $628,413
</TABLE>


15.   DERIVATIVE FINANCIAL INSTRUMENTS

      In  May  1998,  Standard  Life  began  offering   equity-indexed  annuity
products which provide a base rate of return with  a  higher  potential  return
linked  to  the  performance  of  a broad-based equity index.  The Company buys
Standard & Poor's 500 Index Call Options  (the  "S&P  500  Call Options") in an
effort  to  hedge potential increases to policyholder benefits  resulting  from
increases in  the  S&P  500 Index to which the product's return is linked.  The
cost of the S&P 500 Call  Options  is  included  in  the pricing of the equity-
indexed  annuity  products.   The changes in the values of  the  S&P  500  Call
Options are reflected in net investment  income  and  fluctuate  in relation to
changes in policyholder account balances for these annuities.  Premiums paid to
purchase these instruments are deferred and amortized over their term.

      At December 31, 1998, net investment income included $.6 million  related
to  changes  in  the  fair  value of the S&P 500 Call Options.  Such investment
income was substantially offset by amounts credited to financial products.  The
fair value of the S&P 500 Call Options was $1.8 million at December 31, 1998.

      If the counterparts of  the  aforementioned  financial instruments do not
meet their obligations, the Company may have to recognize  a loss.  The Company
limits its exposure to such a loss by diversifying among several counterparties
believed  to  be  strong and creditworthy.  At December 31, 1998,  all  of  the
counterparties were rated "A" or higher by Standard & Poor's Corporation.


16.   FAIR VALUE OF FINANCIAL INSTRUMENTS

      The following discussion outlines the methods and assumptions used by the
Company in estimating  its  fair value disclosures for its financial instrument
assets and liabilities.  Because  fair  values  for all balance sheet items are
not required to be disclosed pursuant to SFAS No.  107, "Disclosures about Fair
Values of Financial Instruments", the aggregate fair  value  amounts  presented
herein  do  not  necessarily  represent  the  underlying  value of the Company;
likewise, care should be exercised in deriving conclusions  about the Company's
business  or financial condition based on the fair value information  presented
herein.

      FIXED MATURITY SECURITIES:  Fair values for fixed maturity securities are
based on quoted  market  prices from broker-dealers, where available. For fixed
maturity securities not actively traded, fair values are estimated using values
obtained  from independent  pricing  services,  or,  in  the  case  of  private
placements,  are  estimated by discounting the expected future cash flows using
current market rates  applicable to the coupon rate, credit rating and maturity
of the investments.


      EQUITY SECURITIES:   The  fair  values for equity securities are based on
the quoted market prices.

      DERIVATIVE  SECURITIES: The fair values  for  derivative  securities  are
based on internal methods developed by our investment advisor.

      MORTGAGE LOANS  AND POLICY LOANS:  The estimated fair values for mortgage
loans and policy loans  are  estimated  using discounted cash flow analyses and
interest rates currently being offered for  similar  loans  to  borrowers  with
similar credit ratings.

      ASSETS  AND  LIABILITIES  HELD IN SEPARATE ACCOUNTS:  Fair values for the
assets  held  in  separate  accounts  are  determined  from  broker-dealers  or
valuations   supplied   by  internationally   recognized   statistical   rating
organizations.  The  separate   account   liability  represents  the  Company's
obligations to policyholders and approximates fair value.

      INSURANCE LIABILITIES FOR INVESTMENT  CONTRACTS:   Fair  values  for  the
Company's  liabilities  under investment-type insurance contracts are estimated
using discounted cash flow  calculations,  based  on  interest  rates currently
being  offered  for  similar  contracts  with maturities consistent with  those
remaining contracts being valued. The estimated  fair  value of the liabilities
for  investment  contracts  was approximately equal to its  carrying  value  at
December 31, 1998 and 1997.   This  is  due  to  i)  credited rates on the vast
majority  of  account  balances  approximating current rates  paid  on  similar
investments and ii) rates not generally being guaranteed beyond one year.


      INSURANCE   LIABILITIES  FOR  NON-INVESTMENT   CONTRACTS:    Fair   value
disclosures for the  Company's  reserves  for  insurance  contracts  other than
investment-type contracts are not required and have not been determined  by the
Company.  However,  the  Company  closely  monitors  the level of its insurance
liabilities  and the fair value of reserves under all insurance  contracts  are
taken into consideration  in  the Company's overall management of interest rate
risk.

      NOTES PAYABLE:  The Company  believes the fair value of its variable rate
long-term debt was equal to its carrying  value  at December 31, 1998 and 1997.
The  Company  negotiated  the terms of its Amended Credit  Agreement  with  its
lenders  in November 1996. Those  negotiations  were  based  on  the  financial
condition  of  the  Company  and  market conditions at that time. The financial
condition of the Company has not changed  significantly since the negotiations,
and although market conditions


16.   FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

have changed, the Company pays a variable rate  of  interest  on the debt which
reflects  the change in market conditions.  The fair value of the  subordinated
convertible  debt  is  based  on  quoted market prices for the amount of shares
convertible.

      The carrying amount of all other financial instruments approximates their
fair values.

      The fair value of the Company's  financial  instruments  is  shown  below
using  a summarized version of the Company's assets and liabilities at December
31, 1998  and  1997  (in thousands). Refer to Note 3 for additional information
relating to the fair value of investments.
<TABLE>
<CAPTION>
                                                                               December 31
<S>                                            <C>                     <C>                    <C>                    <C>
                                                           1998                                             1997
                                               Fair                  Carrying                 Fair                 Carrying
                                               Value                  Amount                  Value                 Amount
Assets:
     Investments:
         Securities available for sale:
           Fixed maturity securities           $551,312                $551,312               $372,576               $372,576
           Equity securities                      1,316                   1,316                     52                     52
         Mortgage loans on real estate            8,856                   8,578                    377                    375
         Policy loans                            14,295                  15,019                  8,978                  9,495
         Other invested assets                      837                     837                    779                    779
         Short-term investments                  11,626                  11,626                 13,342                 13,342
     Cash                                        13,591                  13,591                  4,165                  4,165
     Assets held in separate accounts           190,246                 190,246                148,064                148,064
Liabilities:
     Insurance liabilities for                  506,749                 506,749                350,607                350,607
     investment contracts
     Notes payable                               37,180                  35,000                 27,419                 26,000
     Liabilities related to separate            190,246                 190,246                148,064                148,064
     accounts
</TABLE>


<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17.   EARNINGS PER SHARE

      A reconciliation  of  the  numerator  and denominator of the earnings per
share  computation  is  as  follows  (dollars in thousands,  except  per  share
amounts):

<TABLE>
<CAPTION>
                                                           1998                     1997                     1996
<S>                                                        <C>                      <C>                      <C>
Numerator:
 Income before extraordinary gain and preferred stock      $4,681                   $2,645                   $4,265
    dividends
 Extraordinary gain on early redemption of redeemable      --                       --                       502
    preferred stock
 Preferred stock dividends                                 (180)                    (97)                     (208)
 Numerator for basic earnings per share -
    Income available to common shareholders                4,501                    2,548                    4,559

 Effect of dilutive securities:
    Preferred stock dividends                              180                      97                       208
    14% subordinated convertible debt                      --                       --                       82
    10% subordinated convertible debt                      1,000                    --                       --
                                                           1,180                    97                       290
 Numerator for diluted earnings per share -
    Income available to common shareholders after          $5,681                   $2,645                   $4,849
    assumed conversions
Denominator:
Denominator for basic earnings per share - weighted -      6,846,335                4,948,302                4,856,316
    average shares
Effect of dilutive securities:
 Stock options                                             263,636                  182,615                  24,311
 Stock warrants                                            211,989                  230,285                  108,062
 Class S convertible preferred stock                       --                       230,015                  393,701
 14% subordinated convertible debt                         --                       --                       166,667
 10% subordinated convertible debt                         1,740,038                --                       --
 Series A convertible preferred stock                      301,765                  --                       --
    Dilutive potential common shares                       2,517,428                642,915                  692,741
Denominator  for  diluted earnings per share - adjusted
  weighted -average shares and assumed conversions         9,363,763                5,591,217                5,549,057
Basic earnings per share                                   $.65                     $.52                     $.94
Diluted earnings per share                                 $.60                     $.47                     $.87
</TABLE>

      The Notes convertible in 1997 (SEE  NOTE  5)  were  not  included  in the
computation  of  diluted  earnings  per share in 1997 due to their antidilutive
effect.





<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18.   QUARTERLY FINANCIAL DATA  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


      Earnings per common and common  equivalent  share  for  each  quarter are
computed  independently  of  earnings  per  share  for  the  year.  Due  to the
transactions  affecting  the  weighted  average number of shares outstanding in
each quarter and due to the uneven distribution  of  earnings  during the year,
the  sum  of  the  quarterly earnings per share may not equal the earnings  per
share for the year.


<TABLE>
<CAPTION>
                                                                              1998 Quarters
<S>                                      <C>                      <C>                    <C>                    <C>
                                               First                  Second                  Third                 Fourth
Total revenues                           $11,675                  $19,798                $13,887                $17,510
Components of net income:
     Operating income                    $734                     $1,276                 $1,120                 $1,317
     Net realized investment gain        14                       17                     18                     185
     Net income                          $748                     $1,293                 $1,138                 $1,502
Net income per common share              $.14                     $.18                   $.16                   $.20
Net income per common share, assuming
     dilution                            $.13                     $.16                   $.15                   $.17

                                                                              1997 Quarters
                                               First                  Second                  Third                 Fourth
Total revenues                           $11,998                  $11,342                $11,615                $11,656
Components of net income:
     Operating income                    $528                     $661                   $537                   $658
     Net realized investment gains       115                      21                     53                     72
     Net income                          $643                     $682                   $590                   $730
Net income per common share              $.13                     $.14                   $.12                   $.15
Net income per common share, assuming
     dilution                            $.11                     $.12                   $.11                   $.13
</TABLE>

      Reporting the  results  of  insurance  operations  on  a  quarterly basis
requires  the use of numerous estimates throughout the year, primarily  in  the
computation  of reserves, amortization of deferred policy acquisition costs and
present value  of  future profits,  and the effective rate for income taxes. It
is the Company's practice  to  review estimates at the end of each quarter and,
if necessary, make appropriate adjustments, with the effect of such adjustments
being reported in current operations.  Only  at year-end is the Company able to
assess the accuracy of its previous quarterly  estimates.  The Company's fourth
quarter results include the effect of the difference between previous estimates
and  actual year-end results. Therefore, the results of an interim  period  may
not be indicative of the results of the entire year.



<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                        STANDARD MANAGEMENT CORPORATION
                               (PARENT COMPANY)

                           CONDENSED BALANCE SHEETS
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                               December 31
<S>                                                                                   <C>                            <C>
                                                                                         1998                           1997
                            ASSETS
Investments:
         Investment in subsidiaries                                                   $77,382                        $52,005
          Surplus debenture due from Standard Life                                     27,000                         13,000
         Fixed maturity securities, at fair value (amortized cost $900)                   900                             --
         Equity securities available for sale, at fair value  (amortized                   28                              2
            cost: 1998 - $20; 1997 -$5)
         Real estate                                                                      122                            130
         Notes receivable from officers and directors                                     837                            778
         Short-term investments, at cost, which approximates fair value                    --                             79
                                                                                      106,279                         65,994
Cash                                                                                      940                          1,327
Property and equipment, less accumulated depreciation of $2,038 in 1998                   862                            879
  and $1,636 in 1997
Note receivable from affiliate                                                          2,858                          2,858
Amounts receivable from subsidiaries                                                    2,338                          1,212
Other assets                                                                            1,229                          1,892
            Total assets                                                             $113,350                        $74,162

             LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
   Obligations under capital lease                                                   $     --                           $141
   Notes payable                                                                       35,000                         26,000
   Note payable to affiliate                                                            2,858                          2,858
   Amounts due to subsidiaries                                                            850                            397
   Other liabilities                                                                    2,070                          1,453
            Total liabilities                                                          40,778                         30,849
Class A cumulative convertible redeemable preferred stock, par value $100
per share:
   authorized 130,000 shares; issued and outstanding 65,300 shares in 1998              6,530                             --
Shareholders' Equity:
   Preferred stock, no par value:
         Authorized 870,000 shares; none issued and outstanding                            --                             --
   Common stock, no par value:
         Authorized 20,000,000 shares; outstanding 1998 - 7,641,454; 1997              60,586                         40,646
         - 4,876,490
   Treasury stock, at cost, 1,160,854 shares in 1998 and 876,009 shares in            (6,220)                        (4,572)
        1997
     Accumulated other comprehensive income:
        Unrealized gain (loss) on securities of subsidiaries                            1,683                          2,171
        Foreign currency translation adjustment of subsidiaries                             4                          (473)
   Retained earnings                                                                    9,989                          5,541
           Total shareholders' equity                                                  66,042                         43,313
           Total liabilities and shareholders' equity                                $113,350                        $74,162
</TABLE>

              See accompanying notes to condensed financial statements.


                        STANDARD MANAGEMENT CORPORATION
                               (PARENT COMPANY)

                        CONDENSED STATEMENTS OF INCOME
                            (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                              Year Ended December 31
<S>                                                 <C>                          <C>                          <C>
                                                    1998                         1997                         1996
 Revenues:
   Net investment income (loss)                     $(26)                        $--                          $32
   Interest income from subsidiaries                1,709                        1,519                        357
   Net realized investment losses                   (100)                        --                           --
   Loss on disposal of subsidiary                   --                           --                           (156)
   Other income                                     118                          154                          135
   Rental income from subsidiaries                  995                          1,145                        853
   Management fees from subsidiaries                2,850                        2,100                        1,905
         Total revenues                             5,546                        4,918                        3,126
Expenses:
   Other operating expenses                         3,134                        3,420                        3,470
   Interest expense and financing costs             2,850                        2,367                        799
   Interest expense on note payable to affiliate    160                          162                          161
         Total expenses                             6,144                        5,949                        4,430
Income (loss) before federal income taxes, equity
in earnings
   of consolidated subsidiaries, extraordinary gain (598)                        (1,031)                      (1,304)
   and preferred stock dividends
Federal income tax expense (credit)                 30                           (76)                         --
Income (loss) before equity in earnings of
  consolidated subsidiaries, extraordinary gain 
  and preferred stock dividends                     (628)                        (955)                        (1,304)
Equity in earnings of consolidated subsidiaries     5,309                        3,600                        5,569
Income before extraordinary gain and preferred      4,681                        2,645                        4,265
stock dividends
Extraordinary gain on early redemption of
redeemable preferred stock, net taxes of $0         --                           --                           502
Net income                                          4,681                        2,645                        4,767
Preferred stock dividends                           180                          97                           208
Earnings available to common shareholders           $4,501                       $2,548                       $4,559
</TABLE>



              See accompanying notes to condensed financial statements.
<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                        STANDARD MANAGEMENT CORPORATION
                               (PARENT COMPANY)

                      CONDENSED STATEMENTS OF CASH FLOWS
                            (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                Year Ended December 31
<S>                                                     <C>                        <C>                        <C>
                                                        1998                       1997                       1996
OPERATING ACTIVITIES
Net income                                              $4,681                     $2,645                     $4,767
Adjustments to reconcile net income to net cash
provided by operating activities:
   Amortization of deferred debt issuance costs         97                         71                         32
   Depreciation and amortization                        439                        646                        564
   Equity in earnings of subsidiaries                   (5,309)                    (3,600)                    (5,569)
   Accrued interest payable                             197                        435                        320
   Other liabilities                                    (38)                       79                         192
   Dividend from Standard Life                          --                         1,600                      1,000
   Extraordinary gain                                   --                         --                         (502)
   Other                                                (483)                      (370)                      165
         Net cash provided (used) by operating          (416)                      1,506                      969
         activities
FINANCING ACTIVITIES
Issuance of common stock, net                           19,638                     --                         --
Borrowings, net of debt issuance costs of $206, $70 and
  $208 in 1998, 1997 and 1996, respectively             11,794                     5,558                      16,792
Repayments on long-term debt and obligations under      (3,141)                    (543)                      (491)
  capital lease
Issuance of convertible preferred stock net of issuance
  costs of $141 in 1998                                 6,389                      --                         --
Reissuance of treasury stock in connection with
  exercise of stock options and warrants                234                        --                         --
Redemption of redeemable preferred stock                --                         (1,855)                    (949)
Repurchase of stock warrants                            --                         --                         (600)
Proceeds from common and treasury stock sales           --                         138                        100
Purchase of common stock for treasury                   (1,672)                    (503)                      (2,126)
         Net cash provided by financing activities      33,242                     2,795                      12,726
INVESTING ACTIVITIES
Investments, net                                        (1,685)                    (1,035)                    197
Purchase of property and equipment, net                 (385)                      (439)                      (246)
Surplus debenture contributed to Standard Life          --                         --                         (13,000)
Capital contribution to Standard Life                   --                         (2,400)                    --
Purchase of Savers Life, less cash acquired of $518     (18,039)                   --                         --
Purchase of Midwestern Life, less cash acquired of      (13,104)                   --                         --
  $1,026
         Net cash used by investing activities          (33,213)                   (3,874)                    (13,049)
Net increase (decrease) in cash                         (387)                      427                        646
Cash at beginning of year                               1,327                      900                        254
Cash at end of year                                     $940                       $1,327                     $900
</TABLE>

              See accompanying notes to condensed financial statements.
<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


       SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                        STANDARD MANAGEMENT CORPORATION
                               (PARENT COMPANY)

                    NOTES TO CONDENSED FINANCIAL STATEMENTS

                               DECEMBER 31, 1998


1. BASIS OF PRESENTATION

   For  purposes  of  these condensed financial statements, Standard Management
Corporation ("SMC") carries its investments in subsidiaries at cost plus equity
in undistributed earnings of subsidiaries since date of acquisition. Net income
of its subsidiaries is  included  in  income  using  the  equity  method. These
condensed  financial  statements  should  be  read  in  conjunction  with SMC's
consolidated financial statements included elsewhere in this document.


2. DIVIDENDS FROM SUBSIDIARIES

   SMC  received  a  cash  dividend from subsidiaries of $1.6 million and  $1.0
million in 1997 and 1996, respectively.


<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          SCHEDULE IV -- REINSURANCE

                        STANDARD MANAGEMENT CORPORATION

                 YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                            (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                                  Percentage
                                                          Ceded to            Assumed                              of Amount
                                        Gross               Other           from Other                              Assumed
                                       Amount             Companies          Companies         Net Amount           to Net
<S>                                 <C>                 <C>                <C>                <C>                <C>
YEAR ENDED DECEMBER 31, 1998
Life insurance in force             $2,520,340          $1,231,533         $217               $1,289,024         0.02%
Premiums:
   Life insurance and annuities     $13,160             $4,705             $--                $8,455
   Accident and health insurance    18,333              12,341             --                 5,992
   Supplementary contract and other
     funds on deposit               32                  --                 --                 32
           Total premiums           $31,525             $17,046            $--                $14,479

YEAR ENDED DECEMBER 31, 1997
Life insurance in force             $2,447,782          $1,269,848         $237               $1,178,171         0.02%
Premiums:
   Life insurance and annuities     $11,735             $4,821             $--                $6,914
   Accident and health insurance    17                  --                 --                 17
   Supplementary contract and other
     funds on deposit               169                 --                 --                 169
           Total premiums           $11,921             $4,821             $--                $7,100

YEAR ENDED DECEMBER 31, 1996
Life insurance in force             $3,000,763          $1,633,340         $252               $1,367,675         0.02%
Premiums:
   Life insurance and annuities     $11,862             $2,152             $--                $9,710
   Accident and health insurance    21                  --                 --                 21
   Supplementary contract and other
     funds on deposit               737                 --                 --                 737
           Total premiums           $12,620             $2,152             $--                $10,468
</TABLE>

<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EXHIBIT 21

                   SUBSIDIARIES OF STANDARD MANAGEMENT CORPORATION



                                                                STATE
                                            PERCENTAGE OF   OR COUNTRY IN
NAME OF SUBSIDIARY                           OUTSTANDING   WHICH ORGANIZED

Standard Life Insurance Company of Indiana       100%          Indiana
Dixie National Life Insurance Company           99.4%          Mississippi
Standard Marketing Corporation                   100%          Indiana
Savers Marketing Corporation                     100%          North Carolina
Standard Marketing International, Ltd.           100%          Bermuda
Standard Investor Services Corporation           100%          Indiana
Standard Administrative Services, Inc.           100%          Indiana
Standard Management International  S.A.          100%          Luxembourg
Premier Life (Luxembourg) S.A.                   100%          Luxembourg
Premier Life (Bermuda) Limited                   100%          Bermuda
Standard Development, LLC                        100%          Indiana




<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                                                 EXHIBIT 23.1


                           CONSENT OF INDEPENDENT AUDITORS


      We  consent  to  the  incorporation  by  reference  in  the  Registration
Statement (Form S-8 No. 33-92906) pertaining to the Second Amended and Restated
Stock  Option  Plan  of  Standard   Management  Corporation,  the  Registration
Statement (Form S-8 No. 333-41119) pertaining to the Amended and Restated Stock
Option Plan of Standard Management Corporation  and  the Registration Statement
(Form  S-8  No.  333-41117)  pertaining to the Standard Management  Corporation
Savings Plan, of our report dated  February  18,  1999,  with  respect  to  the
consolidated   financial   statements  and  schedules  of  Standard  Management
Corporation and subsidiaries  included in the Annual Report (Form 10-K) for the
year ended December 31, 1998.

                                          Ernst & Young LLP



Indianapolis, Indiana
March 30, 1999






<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                                                 EXHIBIT 23.2


                           CONSENT OF INDEPENDENT AUDITORS

   We consent to the incorporation  by  reference in the Registration Statement
(Form S-8 No. 33-92906) pertaining to the  Second  Amended  and  Restated Stock
Option  Plan  of  Standard  Management  Corporation, the Registration Statement
(Form S-8 No. 333-41119) pertaining to the  Amended  and  Restated Stock Option
Plan of Standard Management Corporation and the Registration Statement (Form S-
8  No.  333-41117)  pertaining  to the Standard Management Corporation  Savings
Plan, of our report dated February  18,  1999, with respect to the consolidated
financial  statements  of  Standard  Management   International   S.   A.   and
subsidiaries  included  in  the  Annual  Report  (Form 10-K) for the year ended
December 31, 1998 of Standard Management Corporation.

                                                      KPMG Audit

Luxembourg
March 30, 1999


<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


EXHIBIT 24

                                  POWER OF ATTORNEY


      KNOW  ALL  MEN BY THESE PRESENTS, that each of  the  undersigned  persons
whose signature appear  immediately  below,  does hereby constitute and appoint
Ronald D. Hunter and Stephen M. Coons, each with  full  power to act alone, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution,  for  him  and in his name, place and stead,  in  any  and  all
capacities, to sign on behalf  of the undersigned an Annual Report on Form 10-K
("Form 10-K") under the Securities  Exchange  Act  of  1934,  as  amended  (the
"Exchange  Act"),  granting unto said attorney-in-fact and agent full power and
authority to do and  perform  each  and  every  act  and  thing  requisite  and
necessary  to  be done, as fully to all intents and purposes as the undersigned
might or could do  in  person,  hereby  ratifying  and confirming all that said
attorneys-in-fact and agent, or his substitute lawfully  do or cause to be done
by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto set my hand this  30th  day of March,
1999.




              /S/ RONALD D. HUNTER                    /S/   PAUL   B.   PHEFFER
                Ronald D. Hunter                        Paul B. Pheffer


              /S/ GERALD R. HOCHGESANG                /S/ RAYMOND J. OHLSON
              Gerald R. Hochgesang                     Raymond J. Ohlson


              /S/ EDWARD T. STAHL                     /S/ STEPHEN M. COONS
                 Edward T. Stahl                       Stephen M. Coons


              /S/ MARTIAL R. KNIESER                     /S/  ROBERT  A.  BORNS
              Martial R. Knieser                        Robert A. Borns


              /S/ JOHN J. DILLON                      /S/   JERRY   E.  FRANCIS
                 John J. Dillon                        Jerry E. Francis
<PAGE>

               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)